-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QumfYqbJCO3CSDpKCCYtul2hXOOOdsH61VQfgsv6xo/E1xANAKO9L62r8ORXUl5a pvuEf4TNA0CQl9rLWQQ7AA== 0000950123-97-002662.txt : 19970329 0000950123-97-002662.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950123-97-002662 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT BANCORP/NJ/ CENTRAL INDEX KEY: 0000101320 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 221903313 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06451 FILM NUMBER: 97566511 BUSINESS ADDRESS: STREET 1: 301 CARNEGIE CENTER STREET 2: P O BOX 2066 CITY: PRINCETON STATE: NJ ZIP: 08543-2066 BUSINESS PHONE: 6099873200 MAIL ADDRESS: STREET 1: PO BOX 2066 CITY: PRINCETON STATE: NJ ZIP: 08543-2066 FORMER COMPANY: FORMER CONFORMED NAME: UJB FINANCIAL CORP /NJ/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: UNITED JERSEY BANKS DATE OF NAME CHANGE: 19890815 10-K 1 SUMMIT BANCORP. FORM 10-K 1 ================================================================================ FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-6451 SUMMIT BANCORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW JERSEY 22-1903313 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 987-3200 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - -------------------------------------------------- -------------------------------------------------- Common Stock, $1.20 par value New York Stock Exchange 7.75% Sinking Fund Debentures due November 1, 1997 New York Stock Exchange 8.625% Subordinated Notes Due December 10, 2002 New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 20, 1997, the aggregate market value of the voting stock held by non-affiliates of the registrant was $4,354,240,767. As of February 20, 1997, there were 94,317,893 shares of common stock, $1.20 par value outstanding. DOCUMENTS INCORPORATED BY REFERENCE Summit Bancorp 1996 Annual Report to Shareholders (portion) (Parts I, II and IV). Proxy Statement dated March 7, 1997 (portion) (Parts I and III). ================================================================================ 2 SUMMIT BANCORP. Index to Form 10-K Part I
Item 1. Business Page a) General development of business ............................................. 3 b) Financial information about industry segments ............................... 3 c) Narrative description of business ........................................... 3 d) Financial information about foreign and domestic operations and export sales ......................................................... 12 e) Statistical information ..................................................... 13 Item 2. Properties ...................................................................... 17 Item 3. Legal Proceedings ............................................................... 18 Item 4. Submission of Matters to a Vote of Security Holders ............................. 21 Executive Officers of the Registrant ............................................ 22 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ........... 23 Item 6. Selected Financial Data ......................................................... 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................................................... 23 Item 8. Financial Statements and Supplementary Data ..................................... 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................................................................... 23 Part III Item 10. Directors and Executive Officers of the Registrant .............................. 24 Item 11. Executive Compensation .......................................................... 24 Item 12. Security Ownership of Certain Beneficial Owners and Management .................. 24 Item 13. Certain Relationships and Related Transactions .................................. 24 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ................ 25 Signatures ...................................................................... 31
2 3 PART I ITEM 1. BUSINESS. (a) GENERAL DEVELOPMENT OF BUSINESS. UJB Financial Corp. ("UJB") changed its name to Summit Bancorp. ("Summit" or the "Company") simultaneously with the acquisition of The Summit Bancorporation on March 1, 1996. Summit has its corporate office at 301 Carnegie Center, P.O. Box 2066, Princeton, New Jersey 08543-2066. Summit, the registrant, commenced operations on October 1, 1970 as a New Jersey corporation and as a bank holding company registered under the Bank Holding Company Act of 1956. At December 31, 1996, the Company owned three banks ("bank subsidiaries") and several active non-bank subsidiaries and had total consolidated assets of $22.7 billion which ranked it as the largest New Jersey-based bank holding company. The bank subsidiaries engage in a general banking business, and are as follows: Summit Bank, operating in New Jersey ("Summit Bank NJ"); Summit Bank, operating in Pennsylvania ("Summit Bank PA"); and Central Jersey Savings Bank, SLA. Central Jersey Savings Bank, which was acquired on December 7, 1996, was merged into Summit Bank NJ on February 7, 1997. The non-bank subsidiaries engage primarily in securities brokerage, insurance brokerage, venture capital investment, commercial finance lending, lease financing, asset-based lending production, letter of credit issuance, data processing, and reinsuring credit life and disability insurance policies related to consumer loans made by the bank subsidiaries. For a discussion on the development of the company's business during 1996, see the "Financial Review" on pages 19 through 29 of the 1996 Annual Report to Shareholders which is incorporated herein by reference as Exhibit 13. During the last three years Summit has been an active acquirer of financial institutions. For information on these acquisitions and the related 1996 restructuring charges, see Note 2 of the Consolidated Financial Statements on page 39 of the 1996 Annual Report to Shareholders. The details of separate operations for the March 1, 1996, acquisition of The Summit Bancorporation was previously disclosed in the 1995 Annual Report to Shareholders. The details of separate operations for the 1996 acquisitions of Central Jersey Financial Corporation, The Flemington National Bank and Trust Company and Garden State Bancshares, Inc. were immaterial to Summit's Consolidated Financial Statements. The B.M.J. Financial Corp. ("B.M.J.") acquisition was consummated on March 1, 1997, in an exchange of .56 shares of the Company's common stock for each share of B.M.J. common stock. Also included in Note 2 of the Consolidated Financial Statements is information pertaining to the announced merger agreement to acquire Collective Bancorp, Inc. Summit Capital Trust I ("the Trust"), a wholly owned subsidiary of the Company, created on March 12, 1997, is a special purpose subsidiary organized for the sole purpose of issuing up to $225 million of Capital Trust Pass-though Securities ("Trust-Preferred Securities"). On March 20, 1997, the Trust issued $150 million of 8.40% Trust-Preferred Securities. The proceeds of the issuance were lent to the Company in the form of subordinated debentures, maturing March 15, 2027. The Trust-Preferred Securities represent the undivided beneficial interest in the Trust's assets, which consist solely of the subordinated securities issued by the Company. The Company expects to use the net proceeds from the issue of the subordinated debentures for general corporate purposes. The Trust-Preferred Securities, which qualify as Tier I capital, are expected to be traded in the secondary market. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. Summit is engaged in the business of managing or controlling banks and such other businesses related to banking as may be authorized under the Bank Holding Company Act of 1956, as amended. The registrant is also engaged in furnishing services to, or performing services for its present operating subsidiaries. Reference is made below for a discussion about industry segments. (c) (1) NARRATIVE DESCRIPTION OF BUSINESS. Bank Subsidiaries Summit Bank NJ was organized in 1899 and is the Company's largest bank subsidiary, accounting for 86% of the Company's assets. Based on the latest available data concerning deposit market share, Summit Bank NJ ranked as the largest New Jersey-based commercial bank. Summit Bank NJ operates 47 offices to serve most of the 3 4 70 communities in Bergen County, the second most populous county in New Jersey. It also operates 228 other banking offices throughout 17 of the remaining 20 counties in New Jersey. Summit Bank PA was organized in 1968 and is the Company's Pennsylvania bank subsidiary, accounting for 12% of consolidated assets. Summit Bank PA operates 70 offices in 13 counties in eastern Pennsylvania. The Company's bank subsidiaries provide a broad range of retail, commercial and private banking services as well as trust and investment services through a line of business approach to individuals, businesses, not-for-profit organizations, government entities and other financial institutions. The retail banking line of business, which includes the traditional branch network, supermarket branches and automated teller machines, offers a full range of checking, savings, and time deposit products; consumer lending; telephone and personal computer banking; mortgage banking activities including originations, servicing and selling of mortgages as well as other retail financial products. The commercial banking line of business provides financial services to middle-market corporate customers including: asset-based lending; foreign exchange; leasing; term lending; private placement; correspondent banking; treasury services; structured finance; and financing for international trade, construction and development, equipment, commercial real estate and aircraft. The private banking line of business responds to the financial needs of high net-worth individuals by providing credit related products, investments, insurance, retirement and estate planning services. The bank and certain non-bank subsidiaries operate in the trust and investment services line of business, providing a full range of investment products, custodial services and insurance products for individuals and institutions. Non-Bank Subsidiaries The Company, through its wholly-owned subsidiary, Summit Credit Corp., owns and operates Summit Commercial/Gibraltar Corp., which is a commercial finance company operating in the New York and New Jersey metropolitan areas, and specializes in making loans secured by accounts receivable, inventory and equipment, as well as financing sales and leases of equipment. The Company, through its wholly-owned bank subsidiary, Summit Bank PA, owns and operates Summit Discount Brokerage Co., which is engaged in the stock brokerage business and in the underwriting of municipal bonds. The Company, through its wholly-owned bank subsidiaries, owns and operates Summit Service Corporation, which provides data processing services to the bank subsidiaries. Total revenues (excluding intercompany revenues) for all non-bank subsidiaries as a group during the last three years did not account for 10% or more of consolidated revenues of Summit and its subsidiaries. Supervision and Regulation The banking industry is highly regulated. Statutory and regulatory controls increase a bank holding company's cost of doing business and limit the options of its management to deploy assets and maximize income. Areas subject to regulation and supervision by the bank regulatory agencies include: nature of business activities; minimum capital levels; dividends; affiliate transactions; expansion of locations; acquisitions and mergers; interest rates paid on certain types of deposits; reserves against deposits; terms, amounts and interest rates charged to various types of borrowers; and investments. For additional information on regulatory matters, see Note 20 of the Consolidated Financial Statements on page 49 of the 1996 Annual Report to Shareholders. BANK HOLDING COMPANY REGULATION Summit is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "Holding Company Act"). As a bank holding company, Summit is supervised by the Board of Governors of the Federal Reserve System (the "FRB") and is required to file reports with the FRB and provide such additional information as the FRB may require. Summit is also regulated by the New Jersey and Pennsylvania Departments of Banking. 4 5 The Holding Company Act prohibits Summit, with certain exceptions, from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to subsidiary banks, except that it may, upon application, engage in, and may own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking "as to be a proper incident thereto" if the FRB determines that such acquisitions will be, on balance, beneficial to the public. The Holding Company Act requires prior approval by the FRB of the acquisition by Summit of more than five percent of the voting stock of any additional bank. Acquisitions in any state were permitted after September 29, 1995. See "Interstate Banking" below. Satisfactory financial condition, particularly with regard to capital adequacy, and satisfactory Community Reinvestment Act ratings are generally prerequisites to obtaining federal regulatory approval to make acquisitions. All of Summit's subsidiary banks are currently rated "satisfactory" or better under the Community Reinvestment Act. In addition, Summit is subject to various requirements under both New Jersey and Pennsylvania laws concerning future acquisitions. Such laws require the prior approval of the relevant Department of Banking to acquire any bank chartered by that State. Statewide branching is permitted in New Jersey and Pennsylvania. Branch approvals are subject to statutory standards relating to safety and soundness, competition, and public convenience. The Holding Company Act does not place territorial restrictions on the activities of non-bank subsidiaries of bank holding companies. The policy of the FRB provides that Summit is expected to act as a source of financial strength to each of its subsidiary banks and to commit resources to support such subsidiary banks in circumstances in which it might not do so absent such policy. In addition, any capital loans by Summit to any subsidiary bank would be subordinate in right of payment to deposits and certain other indebtedness of such subsidiary bank. Summit is required by the Holding Company Act to file annual reports of its operations with the FRB and is subject to examination by the FRB. Under Section 106 of the 1970 amendments to the Holding Company Act and the regulations of the FRB, bank holding companies and their subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or services. Regulations of the FRB under the Federal Reserve Act require that reserves be maintained by a Summit bank subsidiary on deposits; in addition, reserves must be maintained on certain other obligations, to the extent that the proceeds of any Summit promissory note, acknowledgment of advance, due bill or similar obligation, with a maturity of less than four years, are used to supply or to maintain the availability of funds (other than capital) to the bank subsidiary, except any such obligation that, had it been issued directly by the bank subsidiary, would not constitute a deposit. They also place limits upon the amount of Summit's equity securities which may be repurchased or redeemed by Summit. INTERSTATE BANKING AND REGULATORY RELIEF LEGISLATION IN 1994 The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, enacted September 29, 1994, permits full nationwide interstate banking (e.g., bank holding company ("BHC") acquisition of bank subsidiaries anywhere in the U.S.), with interstate branching by merger to be permitted after June 1, 1997. Importantly, states retain the right to opt-out of interstate branching and to require that out-of-state BHCs and banks comply with state rules governing entry. A brief summary of the Act's major provisions follows: (A) Interstate Banking. Adequately capitalized and adequately managed BHCs are permitted to acquire banks in any state. States cannot opt-out of this provision. State laws may prohibit the purchase of banks 5 years of age or less. Concentration limits are imposed (10% of bank and thrift deposits nationwide/30% in the state; the state supervisor may waive this 30% limit). States retain existing authority to impose nondiscriminatory deposit caps. Those banks with over 30% of statewide deposits may be sold to out-of-state BHCs without being subject to the 30% rule where the BHC has no presence in the host state (some limited exceptions may apply). 5 6 (B) Bank/Thrift Affiliate Agency Authority. An insured bank subsidiary may act as agent for an affiliate bank or thrift in offering specified banking services (receive deposits, renew time deposits, close loans, service loans, and receive payments on loans and other obligations) both within and across state lines without offices of the agent being deemed branches of the affiliates on whose behalf they act. Summit Bank NJ and Summit Bank PA act as agents for each other pursuant to this authority. Thrift affiliates may provide these same agency services under limited circumstances. (C) Interstate Branching. (1) Branching Through Bank Mergers. After June 1, 1997, the appropriate Federal regulator may approve the merger of adequately capitalized banks across state lines, so long as the resulting institution is adequately capitalized and adequately managed. This will allow BHCs, after that date, to convert their subsidiary banks in different states into branches of the same bank; banks in different states, whether within holding companies or independent, will likewise be permitted to directly merge. Bank mergers would have to conform with state laws which impose age restrictions of up to 5 years on acquisitions of new banks. States may opt-out of interstate branching from September 29, 1994 until June 1, 1997. Doing so will preclude the merger of banks in that state with banks located in other states; banks located in states which opt-out would not be permitted to have interstate branches. States may permit interstate branching earlier than June 1, 1997, where both states involved with the bank merger expressly permit it by statute. New Jersey and Pennsylvania have passed such a law. Where the bank/BHC would be effectively moving into a new state as a result of the merger, regulators must consider Community Reinvestment Act compliance of all bank affiliates before approving the merger application. The 10% nationwide/30% state by state deposit concentration limits discussed above also apply to bank mergers; states retain current authority to impose deposit caps. Host state banks with over 30% of statewide deposits may be merged with out-of-state banks without being subject to the 30% rule where the out-of-state bank has no presence in the host state (some limited exceptions may apply). (2) Direct Branching by Banks. National and state banks are prohibited from directly acquiring an existing branch (separate from the acquisition of a charter), or establishing a de novo branch, in a host state unless the law of the host state permits it. New Jersey permits the acquisition of an existing branch but prohibits de novo; Pennsylvania permits both. (D) Foreign Banks. Foreign branches and agencies located in the U.S. will be permitted to branch interstate to the same extent as domestic institutions. However, certain restrictions are placed on foreign branch operations in the U.S. (E) Laws Applicable to State Interstate Branches. Branches of out-of-state state chartered banks will be subject to the laws of the host state, including permissible activities, as if they were branches of a bank located in that host state. State bank supervisors of the host state may examine an in-state branch of an out-of-state state bank for purposes of determining compliance with state law and to ensure that the branch is being operated in a safe and sound manner. (F) Other. For financial institutions that maintain one or more branches outside the home state, the appropriate Federal banking agency must prepare a written evaluation of the entire institution's Community Reinvestment Act performance and a separate evaluation of the institution's performance for each state and metropolitan statistical area, and for the non-metropolitan portion of the state. The Act prohibits the use of interstate branches primarily for the purpose of deposit production, and requires that the interstate bank's level of lending in the host state relative to deposits from the host state (using available information) be greater than half the average of all banks with home offices in that state. The appropriate Federal regulator may require closure of a branch which fails this test. In the case of an interstate bank that proposes to close any branch in a low- or moderate-income area, the branch closure notices must contain the mailing address of the bank's Federal regulator, and a statement that comments regarding the closure may be mailed to that regulator. If a person from the area in which the branch is located submits a written request and includes a statement of specific reasons, and the request is not frivolous, the agency must consult with community leaders and convene a meeting with such leaders and depository institutions to explore the feasibility of 6 7 obtaining adequate alternative facilities and services. The legislation specifically states that this process shall not affect the authority of the bank to close the branch, or the timing of the closing. Congress also enacted the Riegle Community Development and Regulatory Improvement Act of 1994 on September 23, 1994. This Act amended the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") to allow regulators to issue guidelines instead of regulations on asset quality, earnings and stock valuation standards, provides for electronic filing of call reports and currency transaction reports, exempts business purpose loans from the Real Estate Settlement Procedures Act, reduces certain audit requirements of FDICIA, and included many other miscellaneous provisions intended to reduce regulatory burdens. However, stricter requirements are imposed on banks with respect to requiring flood insurance from borrowers. FDICIA The Federal Deposit Insurance Corporation Improvement Act of 1991, which became law in December 1991, in addition to authorizing increased funding for the Bank Insurance Fund ("BIF") by raising the FDIC's borrowing limits and eliminating the cap on deposit insurance premiums, imposes extensive additional statutory requirements regarding the roles, responsibilities, and liabilities of a bank's senior management, directors, independent auditors, and regulators in compliance, management and financial affairs of a bank. This Act has required additional time, effort and resources to be devoted to compliance and internal controls. FDICIA requires each financial institution with $500 million or more in total assets to have an annual audit of its financial statements by an independent public accountant and to have an audit committee consisting of independent outside directors. There are more stringent criteria for audit committees of institutions with $3 billion or more in total assets. It also requires that management report on and assess their responsibility for internal controls over financial reporting and compliance with designated laws and regulations. FDICIA requires each federal banking agency to ensure that its risk-based capital standards take adequate account of interest rate risk, concentration of credit risk and the risks of non-traditional activities, as well as reflect the actual performance and expected risk of loss on multi-family mortgages. In addition, pursuant to FDICIA, each federal banking agency has promulgated regulations specifying the levels at which a financial institution would be considered "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," or "critically undercapitalized," and to take certain mandatory and discretionary supervisory actions based on the capital level of the institution. Insured institutions are generally prohibited from paying dividends or management fees if after making such payments, the institution would be "undercapitalized." An "undercapitalized" institution also is required to develop and submit to the appropriate federal banking agency a capital restoration plan, and each company controlling such institution must guarantee the institution's compliance with such plan. The liability of a holding company under any such guarantee is limited to the lesser of five percent of the institution's total assets at the time it became undercapitalized or the amount needed to comply with all applicable capital standards. The FDIC is accorded a priority over the claims of unsecured creditors in any bankruptcy proceeding of a holding company that has guaranteed an institution's compliance with a capital restoration plan. Further, "undercapitalized," "significantly undercapitalized," and "critically undercapitalized" institutions are subject to increasingly extensive requirements and limitations, including mandatory sale of stock, forced mergers, and ultimately receivership or conservatorship. A "critically undercapitalized" institution, beginning 60 days after it becomes "critically undercapitalized," generally is prohibited from making any payment of principal or interest on the institution's subordinated debt. FDICIA provides that the FDIC insurance assessments are to move from flat-rate premiums to a new system of risk-based premium assessments. The risk-based insurance assessment evaluates an institution's potential for causing a loss to the insurance fund and bases deposit insurance premiums upon individual bank profiles. The majority of the Company's FDIC insured deposits are covered under the Bank Insurance Fund ("BIF"). After BIF reached its "designated reserve ratio" in 1995, the FDIC greatly reduced (and, in the case of the most highly rated and well-capitalized banks, eventually eliminated) assessments applicable to BIF-insured deposits commencing January 1, 1996. As a result of deposits acquired through the acquisition of thrift institutions over the last several years, the Company has approximately $2.3 billion of deposits that are insured under the Savings Association Insurance Fund ("SAIF"). 7 8 The Deposit Insurance Funds Act of 1996, which became law on September 30, 1996, included measures to address the disparity in deposit insurance assessment rates that had developed between institutions whose deposits are insured by BIF and those whose deposits are insured by SAIF. The SAIF was recapitalized through a special "one time only" assessment of 0.657 of all deposits insured by that Fund; the proceeds of this assessment brought SAIF to its designated reserve ratio. The Company's bank subsidiaries were subject to this special assessment with respect to the SAIF-insured deposits held by them; however, they benefited from a 20% reduction provided by the legislation in favor of so-called "Oakar Banks." As part of this legislation, the assessment basis for the Financing Corporation ("FICO") bonds issued to finance resolution of early stages of the savings and loan crisis, was broadened to include banks; however, banks are assessed for this purpose at only one-fifth the rate of the assessment on savings associations until December 31, 1999. As a result of these changes, the deposit insurance assessment for banks and for thrifts has been nearly equalized and will be identical for comparably rated institutions after January 1, 2000, at which time banks will share equally in the FICO assessment and the BIF and SAIF funds will be merged. FDICIA also contains the Truth in Savings Act, which requires certain disclosures to be made in connection with deposit accounts offered to consumers. The FRB has adopted regulations implementing the provisions of the Truth in Savings Act. In addition, significant provisions of FDICIA required federal banking regulators to draft standards in a number of other areas to assure bank safety and soundness, including internal controls, information systems and internal audit systems, credit underwriting, asset growth, compensation, loan documentation and interest rate exposure. The bank regulators have issued substantially similar regulations that impose on banks which fail to meet the safety and soundness standards of FDICIA substantially the same requirements respecting the formulation and implementation of a corrective plan of action as apply in the case of banks failing to meet the capital adequacy standards. FDICIA requires the regulators to establish standards regarding asset quality and earnings. The legislation also contains provisions which tighten independent auditing requirements, restrict the activities and investments of state-chartered banks to those permitted for national banks, amend various consumer banking laws, limit the ability of "undercapitalized" banks to borrow from the FRB discount window, and require federal banking regulators to perform annual on-site bank examinations and set standards for real estate lending. FDICIA significantly increased costs for the banking industry due to higher FDIC assessments, additional layers of reporting and compliance requirements and more limitations on the activities of all but the most well capitalized banks. FIRREA Although the most significant purpose of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") was to restructure the savings and loan industry, many of its provisions have importance for the commercial banking industry, including the provision which authorized bank holding companies to acquire healthy as well as troubled thrift institutions, generally without limitations on interstate acquisitions, while retaining thrift branching powers. Under FIRREA, a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions, including a failure to meet minimum capital requirements, indicating that a "default" is likely to occur in the absence of regulatory assistance. These provisions have commonly been referred to as FIRREA's "cross guarantee" provisions. Liability under the "cross guarantee" provisions is subordinate to claims (other than claims by shareholders, including bank holding companies, in their capacity as shareholders, and affiliates of the institution) of depositors, secured creditors, other general or senior creditors, and holders of obligations subordinated to depositors or other creditors. The FDIC may waive its rights under limited circumstances generally applicable to acquisitions of troubled institutions. FIRREA gives the FDIC as conservator or receiver of a failed depository institution express authority to repudiate contracts with such institution which it determines to be burdensome or if such repudiation will promote the orderly administration of the institution's affairs. Certain "qualified financial contracts", defined to include 8 9 securities contracts, commodity contracts, forward contracts, repurchase agreements, and swap agreements, are generally excluded from the repudiation powers of the FDIC. The FDIC is also given authority to enforce contracts made by a depository institution, notwithstanding any contractual provision providing for termination, default, acceleration, or exercise of rights upon, or solely by reason of, insolvency or the appointment of a conservator or receiver. Insured depository institutions are also prohibited from entering into contracts for goods, products or services which would adversely affect the safety and soundness of the institution. The bank regulatory agencies have broad discretion to issue cease and desist orders if they determine that the Company or its subsidiaries are engaging in "unsafe or unsound banking practices." In addition, the federal bank regulatory authorities are empowered to impose substantial civil money penalties for violations of certain Federal banking statutes and regulations. Financial institutions, and directors, officers, employees, controlling shareholders, agents, consultants, attorneys, accountants, appraisers and others associated with a financial institution could now be subject to increased fines, penalties, and other enforcement actions as a result of provisions of FIRREA. Further, under FIRREA the failure to meet capital guidelines could subject a banking institution to a variety of enforcement remedies available to Federal regulatory authorities, including the termination of deposit insurance by the FDIC. REGULATION OF SUBSIDIARIES Various laws and the regulations thereunder applicable to the Company and its bank subsidiaries impose restrictions and requirements in many areas, including capital requirements, the maintenance of reserves, establishment of new offices, the making of loans and investments, consumer protection, employment practices and other matters. There are various legal limitations, including Sections 23A and 23B of the Federal Reserve Act, on the extent to which a bank subsidiary may finance or otherwise supply funds to Summit or its non-bank subsidiaries. Under federal law, no bank subsidiary may, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its parent or non-bank subsidiaries of its parent or take their securities as collateral for loans to any borrower. See Note 20 of the Consolidated Financial Statements on page 49 of the 1996 Annual Report to Shareholders. Summit and its banking and other subsidiaries are also subject to certain restrictions with respect to engaging in the business of issuing, underwriting, public sale, flotation or distribution of securities. The two state-chartered subsidiary banks are subject to the supervision of, and to regular examination by, the New Jersey Department of Banking and Insurance, in the case of Summit Bank NJ, and the Pennsylvania Department of Banking, in the case of Summit Bank PA. In addition, the subsidiary banks are subject to examination by the FDIC, and by the U.S Department of Education with respect to student loan activity. Summit Bank NJ is also subject to examination by the FRB and, as a registered municipal securities dealer, to the supervision of the Municipal Securities Rulemaking Board. None of the stocks of the subsidiary banks or other subsidiaries owned or controlled by Summit carry statutory double liability. However, Article XIV, Section 11 of the Constitution of the State of Arizona provides that the stock of Summit's credit life insurance subsidiaries may be subject to assessment to restore impaired capital under certain circumstances as and to the extent provided therein. There is no such provision in New Jersey or Pennsylvania law governing Summit's state-chartered banks. Certain statutory restrictions may affect the declaration and payment of dividends by the subsidiary banks to Summit. For additional information see Note 20 of the Consolidated Financial Statements on page 49 of the 1996 Annual Report to Shareholders. Summit and its non-bank subsidiaries are subject to examination by the New Jersey and Pennsylvania state bank regulatory agencies, the FRB and the FDIC at their discretion. As a mortgagee approved by the Department of Housing and Urban Development and a seller - servicer of mortgages approved by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the New Jersey Housing and Mortgage Finance Agency, Summit Bank NJ is subject to regulation or supervision by these government agencies. Summit Bank PA is a participant in the mortgage program conducted by the Pennsylvania Housing Finance Agency and is subject to the supervision of that agency. Summit Discount Brokerage Co. is subject to regulation and examination by the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., and securities regulatory authorities of Connecticut, Florida, New Jersey, New York and Pennsylvania and, as a municipal 9 10 securities dealer, to regulation by the Municipal Securities Rulemaking Board. United Jersey Credit Life Insurance Company and First Valley Life Insurance Company are subject to regulation and examination by the Department of Insurance of the State of Arizona. Beechwood Insurance Agency, Inc. is subject to the jurisdiction of, and to regular examination by, the New Jersey Department of Insurance. Summit Commercial Corp. is subject to the jurisdiction of the Connecticut Department of Banking. Summit and its subsidiaries are also subject to various reporting requirements of Federal and state securities laws, and regulations of the Securities and Exchange Commission and the New York Stock Exchange. From time to time, various bills are introduced in the United States Congress and the New Jersey or Pennsylvania Legislature which could result in additional regulation of the business of Summit and its subsidiaries, or further increase competition or expense. Legislation has been proposed at the federal level that would provide banking organizations such as Summit with greater flexibility to provide non-banking services of a financial nature; and legislation has been proposed that would permit non-banking companies to provide banking services and to acquire banks. It cannot be determined at this time whether any of these proposals will become law, or if they do become law, what effect they will have on the operations of Summit. There is a continuing trend toward regulating every aspect of retail banking through consumer protection laws, at significant expense to financial institutions. At the same time, securities brokers, insurance companies, retailers and other non-bank entities are being allowed to offer a variety of traditional bank services without being subject to the same degree of regulation as banks and bank holding companies. If these trends continue without providing parity to the commercial banks in matters such as permissible services, taxation and interest rates chargeable on loans, adverse effects on commercial banks could ensue. In its operations in other countries, Summit Bank NJ is also subject to restrictions imposed by the laws and banking authorities of such countries. References under this caption, Supervision and Regulation, to applicable statutes are brief summaries of portions thereof which do not purport to be complete and which are qualified in their entirety by reference to such statutes. Monetary Policy and Economic Conditions The earnings and business of Summit and its subsidiaries are affected by the policies of regulatory authorities, including the FRB. The monetary policies of the FRB have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Because of the changing conditions in the national and international economy and in the money markets, as a result of actions by monetary and fiscal authorities, interest rates, credit availability and deposit levels may change due to circumstances beyond the control of Summit or its subsidiaries. Effects of Inflation A bank's asset and liability structure differs from that of an industrial company, since its assets and liabilities fluctuate over time based upon monetary policies and changes in interest rates. The growth in the bank's earning assets, regardless of the effects of inflation, will increase net interest income if the bank is able to maintain a consistent interest spread between earning assets and supporting liabilities, of which there can be no assurance. A purchasing power gain or loss from holding net monetary assets during the year represents the effect of general inflation on monetary assets and liabilities. Almost all of the assets and liabilities of Summit are considered monetary because they are fixed in terms of dollars and, therefore, are not materially affected by inflation. (c)(1)(i) PRINCIPAL PRODUCTS AND SERVICES RENDERED BY INDUSTRY SEGMENTS. Not applicable. See response to Item l (c) (1) contained elsewhere in this report. 10 11 (c)(1)(ii) DESCRIPTION OF NEW PRODUCTS OR SEGMENTS. There were no new products or industry segments that required the investment of a material amount of the assets of the Company or that otherwise were material. (c)(1)(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS. Not applicable. (c)(1)(iv) IMPORTANCE OF PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS HELD. Patents and licenses, as such, are not of importance to Summit or its subsidiaries, but operating charters (similar to licenses) - approved banking location authorizations granted by the New Jersey Department of Banking and Insurance and the Pennsylvania Department of Banking for state-chartered bank subsidiaries - are vital to the operation and expansion of the bank subsidiaries. Such charters are perpetual unless revoked by the granting authorities. Various licenses and approvals to do business are also required by the other regulatory agencies referred to under Supervision and Regulation above. Most of these licenses and approvals require periodic renewal. Summit has several registered service marks, none of which is considered material to its business. The duration of each registration is perpetual so long as the registrant continues to use the mark and renews the registration every ten years. (c)(1)(v) SEASONALITY OF BUSINESS. Not applicable. (c)(1)(vi) WORKING CAPITAL REQUIREMENTS RELATED TO INVENTORY. Not applicable. (c)(1)(vii) CONCENTRATION OF CUSTOMERS. The business of the registrant and its subsidiaries is not dependent on a single customer, nor on a small group of customers. (c)(1)(viii) BACKLOG OF ORDERS. Not applicable. (c)(1)(ix) GOVERNMENT CONTRACTS. No material portion of the business of Summit and its subsidiaries is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. (c)(1)(x) COMPETITION. Each bank subsidiary faces strong competition for local business in the communities it serves from other banking institutions as well as from other financial institutions. Summit's banking subsidiaries compete in the national market with other major banking and financial institutions in the New York and Philadelphia areas, many of which are substantially larger and may have greater financial resources. A number of these institutions offer their services throughout New Jersey and Pennsylvania through bank and non-bank subsidiaries, loan production offices and solicitations through broadcast and print media and direct mail. For international business, Summit competes not only with a substantial number of United States banks having foreign departments, but also with agencies and branches of foreign banks located in the United States and with other major banks throughout the world. The effect of liberalized branching and acquisition laws has been to lower barriers to entry into the banking 11 12 business and to increase competition for banking business, as well as to increase both competition for and opportunities to acquire other financial institutions. Nationwide interstate banking has accelerated these trends. For most of the services which the subsidiaries perform, there is increasing competition from financial institutions other than commercial banks due to the relaxation of regulatory restrictions. Money market funds actively compete with banks for deposits. Savings banks, savings and loan associations and credit unions also actively compete for deposits and for various types of loans; such institutions, as well as securities brokers, consumer finance companies, mortgage companies, factors, insurance companies and pension trusts, are important competitors. Financial institutions such as these, as well as retailers and other non-bank entities, have acquired so-called "non-bank banks" permitting them to offer traditional banking services without being subject to the same degree of regulation. Insurance companies, mutual fund investment counseling firms and other business firms and individuals offer competition for personal and corporate trust services and investment advisory services. Each of Summit's non-bank subsidiaries competes with a very large number of competitors, many of which are substantially larger and have greater financial resources. Competition for banking and permitted non-bank services is based on price, nature of product, quality of service, and in the case of retail activities, convenience of location. (c)(1)(xi) RESEARCH AND DEVELOPMENT. Summit and its subsidiaries conduct research activities, from time to time, relating to the development of new services. Expenditures for these activities are not considered material to the financial condition of Summit and its subsidiaries. Research expenditures during 1996 were charged directly to expense as incurred. (c)(1)(xii) COST OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS. It is not expected that compliance with Federal, state and local provisions relating to the protection of the environment will have any material effect on Summit or its subsidiaries. (c)(1)(xiii) NUMBER OF PERSONS EMPLOYED. At December 31, 1996, there were 7,333 persons, on a full-time equivalent basis, employed by Summit and its subsidiaries. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES. Summit Bank NJ operates an International Banking Department principally for the benefit of its domestic customers and an offshore banking facility on the island of Grand Cayman in the British West Indies. UJB Trade Finance (HK), Limited, operating under a Hong Kong charter, issues documentary letters of credit to Asian suppliers on behalf of U.S. importers. Business at these offshore facilities constituted less than one-half of one percent of the total assets and income of Summit Bank NJ in 1996. 12 13 (e) STATISTICAL INFORMATION The following tables set forth, on a consolidated basis, certain statistical information concerning Summit and its subsidiaries. The tables should be read in conjunction with the consolidated financial statements contained in the 1996 Annual Report to Shareholders. Average data have been derived from daily balances except in the case of certain smaller subsidiaries where month-end balances were used. Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and Interest Differential For information on average balances, interest and average rates earned and paid see Consolidated Comparative Average Balance Sheets With Resultant Interest and Rates on pages 30 and 31 in the 1996 Annual Report to Shareholders. For information on the effective interest differential of volume and rate changes for the years 1996 and 1995 on a tax-equivalent basis see Rate/Volume Table on page 23, and for additional information on interest sensitivity see Asset/Liability Management on pages 26 through 28 in the 1996 Annual Report to Shareholders. Securities The following table shows the carrying value of securities at December 31 for each of the following years:
December 31 ------------------------------------- 1996 1995 1994 ---- ---- ---- (In thousands) Securities available for sale: U.S. Government and Federal agencies .. $2,182,383 $1,902,259 $ 821,430 State and political subdivisions ...... 12,906 -- -- Other securities ...................... 475,125 505,806 300,834 ---------- ---------- ---------- Total securities available for sale $2,670,414 $2,408,065 $1,122,264 ========== ========== ========== Securities held to maturity: U.S. Government and Federal agencies .. $1,698,032 $1,261,172 $2,422,999 State and political subdivisions ...... 217,547 271,621 378,919 Other securities ...................... 1,301,805 1,514,287 1,999,069 ---------- ---------- ---------- Total securities held to maturity $3,217,384 $3,047,080 $4,800,987 ========== ========== ==========
For information on the maturity distribution and weighted average yields to maturity on a tax equivalent basis for securities at December 31, 1996, see Note 3 of the Consolidated Financial Statements on page 40 of the 1996 Annual Report to Shareholders. 13 14 Loan Portfolio For information on the loan portfolio for the five years ended December 31, 1996, see "Loans" on page 21 in the 1996 Annual Report to Shareholders. Included in commercial and industrial loans are lease financing receivables of $578.8 million in 1996, $319.1 million in 1995, $317.4 million in 1994, $204.6 million in 1993, and $153.2 million in 1992. Unearned discount on loans and leases at December 31, 1996 and 1995 were $89.5 million and $103.4 million, respectively. For information concerning concentrations of credit risk, see Note 4 of the Consolidated Financial Statements on page 41 of the 1996 Annual Report to Shareholders. The following table shows the approximate maturities of selected loans at December 31, 1996. The loans are segregated between those which are at predetermined interest rates and those at floating or adjustable interest rates.
Over One Over One Year Year Through Five or Less Five Years Years Total ---------- ---------- ---------- ---------- (In thousands) Loan categories: Commercial and industrial ............................ $2,372,710 $1,533,425 $ 310,288 $4,216,423 Construction and development ......................... 283,929 134,998 52,486 471,413 ---------- ---------- ---------- ---------- Total $2,656,639 $1,668,423 $ 362,774 $4,687,836 ========== ========== ========== ========== Amounts of loans based upon: Predetermined interest rates ......................... $ 617,749 $ 862,608 $ 274,477 $1,754,834 Floating or adjustable interest rates ................ 2,038,890 805,815 88,297 2,933,002 ---------- ---------- ---------- ---------- Total $2,656,639 $1,668,423 $ 362,774 $4,687,836 ========== ========== ========== ==========
For information concerning the Company's accounting policy for non-performing loans, see Note 1 of the Consolidated Financial Statements on pages 36 and 37 of the 1996 Annual Report to Shareholders. The following table shows the principal amount of non-performing loans, renegotiated loans, and loans contractually past due 90 days or more at December 31 for each of the past five years, and their resultant impact on earnings before taxes for the years then ended. All loans in the following table represent domestic loans. There are no foreign loans included in any of the categories.
1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands) Non-performing loans ........................................................ $132,086 $188,289 $197,285 $312,605 $423,748 Renegotiated loans .......................................................... -- 199 2,920 6,778 34,710 Loans, not included above, contractually past due 90 days or more (1) ......................................................... 60,570 47,786 39,645 58,852 76,766 IMPACT ON INTEREST INCOME: Interest income that would have been recorded on non-performing and renegotiated loans outstanding at December 31 in accordance with their original terms .................................................... $ 13,497 $ 19,724 $ 19,702 $ 28,225 $ 37,524 Interest income actually received and recorded on non-performing and renegotiated loans outstanding at December 31 ............................................. 1,817 2,833 2,642 5,332 4,897 -------- -------- -------- -------- -------- Lost income on non-performing and renegotiated loans $ 11,680 $ 16,891 $ 17,060 $ 22,893 $ 32,627 ======== ======== ======== ======== ========
- ---------- (1) Primarily consumer and residential mortgage loans which are well collateralized and in the process of collection. Potential problem loans are those which management believes conditions indicate that the collection of principal and interest may be doubtful in accordance with the original contract terms. They are not included in non-performing loans as these loans are still performing. Potential problem loans were $11.0 million and $18.7 million at December 31, 1996 and 1995 respectively. Potential problem loans at December 31, 1996 comprised 14 15 commercial and industrial loans of $5.9 million, construction and development loans of $4.9 million, and real estate related loans of $.2 million. The risk associated with such loans has been factored into the Company's allowance for loan losses. Summary of Loan Loss Experience The relationship for the past five years among loans, loans charged off and loan recoveries, the provision for loan losses and the allowance for loan losses is shown below:
Year Ended December 31 ------------------------------------------------------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands) Loans: Average for the period ................. $ 13,416,526 $ 13,416,526 $ 12,387,584 $ 11,889,465 $ 12,043,874 ============ ============ ============ ============ ============ Allowance for loan losses: Balance, beginning of period ........... $ 279,034 $ 305,330 $ 339,028 $ 374,639 $ 388,846 Acquisition adjustments, net ........... 8,492 6,131 1,910 -- -- Provision charged to operating expenses ............................. 62,000 71,850 91,995 112,885 165,553 Loans charged off: Commercial and industrial ............ 36,524 45,293 37,229 75,966 84,910 Construction and development ......... 16,862 35,451 39,209 38,354 74,260 Commercial mortgage .................. 25,695 25,741 21,731 18,590 13,490 Residential mortgage ................. 5,043 6,016 4,440 3,829 3,794 Consumer ............................. 20,913 13,871 10,300 29,760 20,810 ------------ ------------ ------------ ------------ ------------ Total loans charged off ........ 105,037 126,372 112,909 166,499 197,264 ------------ ------------ ------------ ------------ ------------ Recoveries Commercial and industrial ............ 12,602 14,684 13,921 10,856 9,489 Construction and development ......... 2,427 2,072 1,320 1,657 1,662 Commercial mortgage .................. 2,466 1,920 2,838 724 876 Residential mortgage ................. 838 667 594 315 181 Consumer ............................. 4,897 2,752 3,585 4,451 5,296 ------------ ------------ ------------ ------------ ------------ Total recoveries ............... 23,230 22,095 22,258 18,003 17,504 ------------ ------------ ------------ ------------ ------------ Net loans charge off ..................... 81,807 104,277 90,651 148,496 179,760 Write downs on transfer to assets held for accelerated disposition ....... -- -- 36,952 -- -- ------------ ------------ ------------ ------------ ------------ Balance, end of period $ 267,719 $ 279,034 $ 305,330 $ 339,028 $ 374,639 ============ ============ ============ ============ ============ Ratio of: Net charge offs to average loans outstanding .......................... 0.56% 0.78% 0.73% 1.25% 1.49% Allowance to year-end loans ............ 1.81% 1.99% 2.33% 2.85% 3.13%
For additional information, see Notes 4 and 5 to the Consolidated Financial Statements on page 41 and Allowance for Loan Losses and Related Provision on page 26 of the 1996 Annual Report to Shareholders. 15 16 Specific allocations as well as a need for general reserves are identified by loan type and allocated according to the following categories of loans at December 31 for each of the past five years. The analysis of the adequacy of the allowance for loan losses for the year 1995 and prior was the result of combining The Summit Bancorporation and UJB Financial Corp. analysis. The analysis for 1996 includes the effect of the merged entities under the one methodology. The percentage of loans to total loans is based upon the classification of loans shown as follows:
1996 1995 1994 1993 1992 (In thousands) ------------------- ------------------ ------------------ -------------------- ---------------- Percentage Percentage Percentage Percentage Percentage of of of of of loans to loans to loans to loans to loans to total total total total total Amount loans Amount loans Amount loans Amount loans Amount loan ------ ----- ------ ----- ------ ----- ------ ----- ------ ---- Commercial and industrial ................. $ 39,280 28.5% $ 53,925 31.6% $ 62,300 32.4% $ 78,181 31.7% $ 85,906 31.8% Construction and development .............. 36,352 3.2 43,951 4.1 61,274 6.0 85,580 8.2 101,251 9.3 Commercial mortgage 20,690 15.6 31,754 16.5 31,943 16.8 30,814 20.0 32,689 19.3 Residential mortgage 8,152 25.6 15,501 23.5 15,740 21.4 13,529 18.1 15,901 17.5 Consumer ..................... 22,259 23.2 21,150 22.0 24,992 21.0 20,934 20.3 26,194 20.8 Loan commitments and other loans .............. 7,762 3.9 26,895 2.3 3,221 2.4 1,226 1.7 1,696 1.3 Unallocated .................. 133,224 N/A 85,858 N/A 105,860 N/A 108,764 N/A 111,002 N/A -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total $267,719 100.0% $279,034 100.0% $305,330 100.0% $339,028 100.0 $374,639 100.0% ======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Deposits For information on classification of average balances for deposits, see "Comparative Average Balance Sheets With Resultant Interest and Rates" on pages 30 and 31, and for additional information on deposits at December 31, 1996, see Note 8 to the Consolidated Financial Statements on page 42 of the 1996 Annual Report to Shareholders. The following table shows, by time remaining to maturity, all certificates of deposit $100,000 and over at December 31, 1996 (in thousands):
Less than three months ................ $628,691 Three to six months ................... 41,700 Six to twelve months .................. 71,512 More than twelve months ............... 248,778 -------- Total $990,681 ========
Return on Equity and Assets For information on consolidated ratios, see "Summary of Selected Financial Data" on pages 52 and 53 and see "Unaudited Quarterly Financial Data" on page 54 in the 1996 Annual Report to Shareholders. 16 17 Short-Term Borrowings The following table summarizes information relating to certain short-term borrowings for each of the past three years:
Maximum Daily Average for Year Amount Amount ---------------------- Outstanding Outstanding at Average Rate at Amount Interest at any December 31 December 31 Outstanding Rate Month End ----------- ----------- ----------- ---- --------- (In thousands) Securities sold under agreements to repurchase: 1996 $ 796,815 5.53% $ 574,011 5.17% $ 844,988 1995 649,650 5.48 817,152 5.47 966,269 1994 1,177,725 5.24 920,654 4.35 1,273,711 Federal funds purchased: 1996 $ 199,950 6.22% $ 628,989 5.32% $1,186,691 1995 200,700 5.57 253,516 5.85 442,675 1994 172,255 5.94 540,073 4.22 708,456
ITEM 2. PROPERTIES. The Company owns its administrative headquarters building in West Windsor Township, New Jersey. The principal banking office of Summit Bank NJ is located in Hackensack, New Jersey in a nine-story building owned by the bank. In addition to its principal office, Summit Bank NJ also leases facilities in Cranford and Dayton, New Jersey, which are used for various administrative and back office loan operations. The principal banking and administrative offices of Summit Bank PA are located in an eleven-story building in Bethlehem, Pennsylvania. Summit Bank PA leases the building for an initial term ending in the year 2000, with renewal options extending for an additional 38 years. Summit Bank PA occupies approximately two-thirds of the building. The bank subsidiaries conduct business in approximately 345 banking offices, of which approximately 44% are owned, with the remaining leased. Office space in certain of the owned buildings is leased to others. Summit Service Corporation, a wholly owned subsidiary of the bank subsidiaries, leases 300,000 square feet of real property located in Ridgefield Park, New Jersey for use as the principal data processing facility. For additional information on properties see Note 6 of the Consolidated Financial Statements on page 42 of the 1996 Annual Report to Shareholders. 17 18 ITEM 3. LEGAL PROCEEDINGS. Management does not believe that the ultimate disposition of the litigation discussed below will have a material adverse effect on the financial position and results of operation of the Company and its subsidiaries, taken as a whole. 1. Cushman & Wakefield of New Jersey, Inc. v. Alexander Summer Company and United Jersey Bank. Filed December 26, 1989 in the Superior Court of New Jersey, Bergen County, Docket No. L-000012-90; cross-appealed to the Superior Court of New Jersey, Appellate Division, Docket No. A-1531-94 (T1); petition to the New Jersey Supreme Court for certification, Docket number 43,333. Plaintiff originally brought this action to recover brokerage commissions and punitive damages, alleging tortious interference with contract and tortious interference with prospective economic advantage. In its complaint, plaintiff alleged that United Jersey Bank (former name of Summit Bank NJ) utilized plaintiff's services to obtain leases for its new operations center and two branch banks, and that the Bank and the co-defendant, a real estate brokerage proprietorship owned by a director of the Bank, improperly deprived plaintiff of these commissions. On November 7, 1994, the trial court found in favor of the plaintiff with respect to the two branches and awarded compensatory damages of $131,250, prejudgement interest of $42,759, and punitive damages in the amount of $400,000. The trial court held that it could not award damages relating to loss of the brokerage commission on the operations center because the Bank leased an adjacent property, not the one shown to it by plaintiff. The trial court also held that it could not consider plaintiff's legal expenses in the award of punitive damages. The parties cross-appealed. In a decision filed November 18, 1996, the Appellate Division affirmed that portion of the trial court's decision in favor of plaintiff with respect to the two branches but, reversing the trial court, also held that the plaintiff was entitled to damages for loss of the brokerage commission on the operations center (estimated to be between $3.7 and $4.2 million), and that the trial court should consider plaintiff's litigation expenses in the award of punitive damages. The Appellate Division remanded the matter to the trial court for further proceedings consistent with its opinion. The Bank and its co-defendant have petitioned the Supreme Court of New Jersey for certification to review the determination of the Appellate Division. The Supreme Court has not yet granted or denied certification. The Bank is contractually indemnified by Alexander Summer Company, the co-defendant, against damages and legal expenses arising out of claims by third parties, including plaintiff, for brokerage commissions. 2. Annette Loatman on behalf of herself and all others similarly situated v. United Jersey Bank, U.S. District Court for the District of New Jersey, Civil Action No. 95CV05258 (JBS), filed on October 4, 1995. The plaintiff alleges that she is representative of a class of United Jersey Bank (former name of Summit Bank NJ) customers who obtained consumer loans (primarily on automobiles and trailers) from the Bank and who either did not obtain required insurance or permitted that insurance to lapse, after which the Bank "force-placed" insurance. The complaint alleges breach of contract and of the implied covenants of good faith and fair dealing, unconscionable commercial practices under the New Jersey Consumer Fraud Act, unjust enrichment, breach of fiduciary duty and violations of the National Bank Act and Depository Institution and Monetary Control Act. On January 6, 1996, the Bank filed a motion to dismiss Count V of the complaint (in which plaintiff claims a violation of the National Bank Act and Depository Institution and Monetary Control Act) for failure to state a federal claim upon which relief may be granted and to dismiss the remaining counts of the complaint for lack of supplemental jurisdiction. The plaintiff filed an opposing brief and, on July 29, 1996, the court denied the motion. On August 22, 1996, the Bank served a motion for summary judgment. Opposition papers have been filed by the plaintiff. The return date of the motion was December 20, 1996 but no decision has been rendered by the Court. On November 21, 1996, the plaintiff filed a motion for class certification and the Bank opposed the motion. No return date has been set for this last motion and no decision has been rendered,. On October 14, 1996, counsel for the plaintiff filed a companion case, Robert M. Gundle, III, on behalf of himself and all others similarly situated v. Summit Bank, successor in interest to United Jersey Bank, U.S. District Court for the District of New Jersey, Civil Action No. 96-4477 (JBS). The allegations of the Gundle complaint are substantially the same as those in Loatman. On October 30, 1996, the plaintiff filed a motion to consolidate 18 19 the Gundle matter into the Loatman matter. The Bank has filed opposition papers. The return date of this motion was December 6, 1996, but no decision has been rendered by the Court. On April 24, 1996, Annette Loatman filed an action in the Superior Court of New Jersey, Camden County, entitled, Annette Loatman, on behalf of herself and all others similarly situated v. United Jersey Bank, Docket No. L-3527-96 ("the State Action"). The allegations in the State Action are substantially similar to those of Loatman. On August 16, 1996, the State Action was stayed by the court for ninety days pending the resolution of the District Court matter with the understanding that, if the District Court matter were still pending, the state court action would be dismissed. At the end of the ninety day period, the plaintiff filed a motion to extend the stay. The Bank filed papers in opposition. On December 9, 1996, the court denied the motion to extend the stay and dismissed the State Action without prejudice. 3. In re Payroll Express Corporation of New York and Payroll Express Corporation, United States Bankruptcy Court for the Southern District of New York. Case Nos. 92-B-43 149 (CB) and 92-B-43 150 (CB). Summit Bank NJ, formerly known as United Jersey Bank, is involved in a number of cases venued in the United States Bankruptcy Court and the United States District Court for the Southern District of New York (the "Bankruptcy Cases") involving a former customer of the Bank, Payroll Express Corp. ("Payroll"), and several related entities. Payroll was primarily in the business of providing on-site check cashing services. Customers of Payroll deposited funds into a general deposit account ("Account") at the Bank to cover their payrolls. The Account was given credit for deposits received by Payroll and cash was obtained by debiting the Account. Payroll perpetrated a substantial check kiting scheme using the Account and another account at National Westminster Bank, NJ ("NatWest"). NatWest apparently discovered this scheme in late May of 1992. Due to this discovery, NatWest ceased honoring checks drawn by Payroll on its account. The Bank was ultimately left with a loss of approximately $4 million in the Account. On June 5, 1992, Robert Felzenberg, the President of Payroll, was charged in a Federal court located in Manhattan with embezzlement and wire fraud. He has pled guilty to among other things, wire and tax fraud, and was sentenced to six and one-half years imprisonment in March 1994. A trustee (the "Trustee") has been appointed by the Bankruptcy Court. Payroll customers deposited a total of $11.8 million into the Account during the last two weeks of May 1992. A number of these customers have asserted claims against the Bank, although only four lawsuits are currently pending: Beth Israel Medical Center, et al v. United Jersey Bank and National Westminster Bank New Jersey, United States District Court for the Southern District of New York, Civil Action No. 94-8256 (LAP), Frederick Goldman, Inc. v. United Jersey Bank and National Westminster Bank New Jersey, United States District Court for the Southern District of New York, Civil Action No, 94-8256 (LAP), Towers Financial Corporation v. United Jersey Bank, United States District Court for the District of New Jersey, Civil Action No.92-3175 (WGB), New York City Transit Authority v. United Jersey Bank and National Westminster Bank New Jersey, United States District Court for the Southern District of New York, Civil Action No.95-3685 (LAP) and Copytone, Inc. on behalf of itself and others similarly situated v. United Jersey Bank, National Westminster Bank New Jersey and John Does I through 20, United States District Court for the Southern District of New York, Civil Action No. 95-8217 (LAP). The lawsuits allege various common law causes of action against the Bank, including unjust enrichment, restitution, conversion, fraud, negligence and/or breach of fiduciary duty. In addition, the Copytone matter purports to be a class action. The Beth Israel, Frederick Goldman, New York Transit Authority and Copytone matters were consolidated and the Bank filed motions to dismiss the complaints for failure to state a claim upon which relief can be granted. The motions were heard on February 15, 1996. On October 11, 1996, the court granted the Bank's motion in part, dismissing the claims against the Bank which were based on negligence, aiding and abetting the wrongful conduct of Payroll Express, breach of fiduciary duty, fraud, equitable fraud, conspiracy to conceal check-kiting by Payroll Express, as well as a part of the conversion claims. The court denied the remainder of the Bank's motion but stayed the proceedings as to the remaining claims until the completion of the preference action entitled In re Payroll Express Corporation et al - John S. Pereira as Chapter 11 Trustee of the Estate of Payroll 19 20 Express Corporation et al v. United Jersey Bank, United States District Court for the Southern District of New York, Civil Action No. 94-1565 (LAP). A status conference was held in the fifth customer lawsuit, Towers Financial Corporation v. United Jersey Bank, United States District Court for the District of New Jersey, Civil Action No.92-3175 (WGB), on November 15, 1996. The court requested that Towers dismiss its lawsuit without prejudice, and await resolution of the preference lawsuit brought by the Trustee in Bankruptcy or file a new lawsuit in the United States District Court for the Southern District of New York. Towers agreed to dismiss its lawsuit and, on November 17, 1996, the Court entered an order dismissing the lawsuit without prejudice. The Trustee appointed in the Bankruptcy Cases described above has filed two adversary proceedings against the Bank. The first, captioned John E. Pereira, as Chapter II Trustee of the Estate of Payroll Express Corporation et al. v. United Jersey Bank, was originally filed in the United States Bankruptcy Court for the Southern District of New York. The adversary complaint alleges the Account received incoming wire transfers of at least $17,013,537.54 within the 90 days prior to the filing of bankruptcy by Payroll. These incoming wire transfers were allegedly used by the Bank to reduce its losses on the check kiting scheme. The Trustee claims that the amounts of the wire transfers are recoverable by the Trustee as avoidable preferences under the Bankruptcy Code. The Bank successfully moved to withdraw the reference of this matter to the United States District Court for the Southern District of New York where it is currently pending under Civil Action No.94-1565 (LAP). The Bank then filed a motion for summary judgment. In opposition, the Trustee filed a cross-motion for summary judgment. Briefing on the motions was completed and the motions were heard on February 15, 1996. On October 11, 1996, the court denied both motions. The second adversary complaint, captioned John E. Pereira, as Chapter 11 Trustee of the Estate of Payroll Express Corporation et al. v. United Jersey Bank, United States Bankruptcy Court for the Southern District of New York, Adversary Proceeding No. 94-8297A, alleges that the mortgages given to the Bank on property owned by the various Felzenberg-controlled entities, together with certain loan payments made by Payroll to the Bank, were fraudulent conveyances. The properties in question have all been sold. The Trustee also seeks the return of $310,000.00 in principal and $152,487.50 in interest payments made by Payroll on its loan, in the year prior to the bankruptcy. The Trustee claims that these transfers are recoverable under section 548 of the Bankruptcy Code, as well as under the New Jersey Uniform Fraudulent Transfer Act. The Bank has filed an answer denying the material allegations of the complaint and the parties have concluded fact discovery. Discovery of experts has commenced and will be followed by pre-trial motions (if necessary) and eventually a trial. 4. Michael Hochman and Joan Hochman, individually and on behalf of a class of similarly situated depositors v. United Jersey Bank, a New Jersey corporation and UJB Financial Corp., a New Jersey Corporation, originally filed on December 7, 1995 in the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. MID-L-10623-95, and now pending in the United States District Court for the District of New Jersey, Case No.96-916 (MTB). The plaintiffs allege that they are representatives of a class of Summit Bank NJ customers who purchased and redeemed certificates of deposit and who were entitled to, but were not paid, interest for the period from the date of maturity until the date of redemption. The plaintiffs allege breach of contract, fraud and a violation of the New Jersey Consumer Fraud Act. They seek payment, to themselves and other members of the putative class, of the interest alleged to be owed, a declaratory judgment that the Bank is obligated to pay interest during the 10 day redemption grace period after maturity, counsel fees and costs. They also seek treble damages under the New Jersey Consumer Fraud Act. On February 16, 1996, Plaintiffs filed an amended complaint, alleging violations of the federal Truth in Savings Act. The Bank and UJB Financial Corp. then removed the matter to the U.S. District Court for the District of New Jersey where it is presently pending. On March 21, 1996, the Bank and UJB Financial Corp. filed a motion for summary judgment. On April 23, 1996, the plaintiffs filed a cross-motion for summary judgment. Briefing on the motions has been completed and the Court has declined to hear oral argument. No decision has been rendered by the Court to date on the motions. 5. McAdoo CERCLA Matter. First Valley Bank ("FVB"), now known as Summit Bank PA, foreclosed on property in McAdoo, Pennsylvania, taking title by a sheriff's deed in 1980. The property was later designated by the United States Environmental Protection Agency ("EPA") as a part of a site (the "McAdoo Site") listed on the 20 21 National Priorities List of sites to be remediated pursuant to the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). On June 3, 1988, the United States District Court for the Eastern District of Pennsylvania entered a Consent Decree in United States v. Air Products and Chemicals, Inc., Civil Action No.87-7352 (the "Air Products litigation"), in which sixty-five potentially responsible parties ("PRPs"), not including FVB, agreed to undertake remediation of the McAdoo Site and the United States agreed to pay 25% of the settling PRPs' (the "Initial PRPS") cost of remediation. On June 11, 1988, after having made a demand upon FVB and a number of other non-settling PRPs, the United States sued a number of the PRPs other than FVB who did not enter into the Consent Decree in a matter entitled United States of America v. Alcan Aluminum et al, United States District Court, Eastern District of Pennsylvania, Civil Action No.88-4970 (the "Alcan litigation"). Although the United States did not sue FVB, on April 16, 1990, one defendant in the Alcan Litigation, Kalama Chemical, Inc., filed a motion for leave to file a third party complaint against FVB seeking contribution. The motion was denied without prejudice. FVB then participated in settlement discussions in the Alcan litigation. Pursuant to those negotiations, FVB and certain defendants, third-party defendants and other potential third-party defendants deposited, in a Court registry, a sum which the United States agreed will satisfy all of its claims against FVB. FVB's contribution was $192,000. The parties also executed a Consent Decree which was approved by the District Court by Order dated June 24, 1993. The Consent Decree gives FVB a broad covenant not to sue and contribution protection to the extent available under 42 U.S.C. 9622(d)(2). The Consent Decree was the subject of public notice and comment, pursuant to 42 U.S.C. 9622(d)(2). The Initial PRPs submitted comments to the United States, objecting to the Consent Decree, including inter alia, the broad release provided to FVB. The Initial PRPs also filed a motion to intervene in the Alcan litigation, which was denied by the District Court. The Initial PRPs then appealed that denial to the United States Court of Appeals for the Third Circuit in a matter captioned United States V. Alcan Aluminum, Inc., et al, Action No.93-1099 (3rd Cir.). On May 25, 1994, the Third Circuit vacated the District Court's orders denying the motion to intervene and approving the Consent Decree, holding that the Initial PRPs may intervene as a matter of right in the Alcan litigation if they can prove that they have a protectable interest in that litigation. Consequently, the case was remanded to the District Court to determine whether the Initial PRPs have a protectable interest in the Alcan litigation. As a result of settlement negotiations, the parties have reached an agreement in principle for the settlement of the case and the Court has suspended all proceedings in the case. Under the agreement, the Alcan Settlors agreed to pay an additional $190,000.00, upon the entry of two new Consent decrees, one for the Alcan litigation and one for the Air Products litigation. FVB's portion of the $190,000.00 amounts to $8,500.00. The parties and the government then engaged in lengthy negotiations over the specific terms of the two Consent Orders. The parties reached agreement on the language of the two Consent Decrees in September 1996 and in late September 1996, the Alcan Settlors and the Air Products Settlors signed the two Consent Decrees. In the final Alcan Consent Decree, the United States again would provide FVB with a very broad release from past and future liability, similar to that contained in the earlier Alcan Consent Decree. Further, the Air Products parties are signatories to the new Alcan Consent Decree, and they specifically have agreed to the broad release afforded to FVB. The two Consent Decrees must now be signed by representatives of the United States. Before these signatures may be obtained, the Consent Decrees must undergo an internal governmental approval process that typically takes several months. If the Consent Decrees are fully executed by the United States, they will be lodged with the Court, public notice will be published and a period of public comment will be provided. The United States will reserve the right to withdraw its consent based on this public comment. If, following public comment, the United States does not withdraw its consent, it must then move for Court approval and entry of the Consent Decrees. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 21 22 EXECUTIVE OFFICERS OF THE REGISTRANT.
The following data is supplied as of March 7, 1997: Title (All positions and offices presently held with Name Age Registrant) and year appointed to office(s) - --------------------- ---- ------------------------------------------------------------- T. Joseph Semrod ......... 60 Chairman of the Board and Chief Executive Officer (1981) Robert G. Cox ............ 56 President (1996) John G. Collins .......... 60 Vice Chairman (1986) John R. Howell ........... 63 Vice Chairman (1987) John R. Haggerty ......... 61 Senior Executive Vice President/Finance (1987) and Treasurer (1981) Sabry J. Mackoul ......... 56 Senior Executive Vice President/Retail Banking (1993) Stephen H. Paneyko ....... 54 Senior Executive Vice President/ Commercial Banking (1987) Larry L. Betsinger ....... 59 Executive Vice President/Corporate Information Services (1990) Alfred M. D'Augusta ...... 55 Executive Vice President/Human Resources (1988) John R. Feeney ........... 47 Executive Vice President/Asset Liability Management (1996) William J. Healy ......... 52 Executive Vice President (1988) and Comptroller (1979) and Assistant Secretary (1980) Richard F. Ober, Jr. ..... 53 Executive Vice President (1988), General Counsel (1975) and Secretary (1978) Dennis Porterfield ....... 60 Executive Vice President/Bank Investments (1991) and Assistant Secretary (1975) Alan N. Posencheg ........ 55 Executive Vice President/Corporate Operations and Information Services (1984) Gary F. Simmerman ........ 62 Executive Vice President/Consumer Loans and Services (1994) George J. Soltys, Jr. .... 50 Executive Vice President/Corporate Planning (1996) Edmund C. Weiss, Jr. ..... 54 Executive Vice President (1990) and Auditor (1977)
The term of each of the above officers is until the next organization meeting of the Board of Directors, which occurs immediately following the annual meeting of shareholders, and until a successor is appointed by the Board of Directors. Each officer may be removed at any time by the Board of Directors without cause. Management of Summit is not aware of any family relationship between any director or executive officer or person nominated or chosen to become a director or executive officer. All of the executive officers named above have been employed in executive positions by Summit, a subsidiary of Summit or a bank holding company merged into Summit for more than the last five years. 22 23 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. This item has been omitted pursuant to paragraph (2) of General Instruction "G" - Information to be Incorporated by Reference. See the Shareholders' Equity and Dividends section in the Financial Review on pages 22 and 23, Notes 13 and 20 to the Consolidated Financial Statements on pages 43 and 49, Unaudited Quarterly Financial Data on page 54, and Quarterly Common Stock Price and Dividend Information on page 57 of the 1996 Annual Report to Shareholders. At February 28, 1997 there were 27,996 record holders of Summit Common Stock. ITEM 6. SELECTED FINANCIAL DATA. This item is omitted pursuant to paragraph (2) of General Instruction "G" - Information to be Incorporated by Reference. See Consolidated Summary of Selected Financial Data on pages 52 and 53 of the 1996 Annual Report to Shareholders. Included in non-interest income for the years 1996 through 1992 were investment securities gains of $5.2 million, $8.6 million, $2.2 million, $9.6 million, and $19.2 million respectively. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This item is omitted pursuant to paragraph (2) of General Instruction "G" - Information to be Incorporated by Reference. See Financial Review on pages 19 through 29 of the 1996 Annual Report to Shareholders. Reference is made to page 10 of this report for a discussion of the effects of inflation. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. This item is omitted pursuant to paragraph (2) of General Instruction "G" - Information to be Incorporated by Reference. See Consolidated Financial Statements and Notes to Consolidated Financial Statements on pages 32 through 50 and page 54 of the 1996 Annual Report to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 23 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. This item is omitted pursuant to paragraph (3) of General Instruction "G" - Information to be Incorporated by Reference, except that certain information on Executive Officers of the Registrant is included in Part I of this report. A definitive proxy statement, dated March 7, 1997 (the "Proxy Statement"), was filed with the Securities and Exchange Commission on March 7, 1997. Information required by Item 401 of Regulation S-K is provided at page 22 of this Annual Report on Form 10-K and in the Proxy Statement at pages 2-6 under the caption "Election of Directors", which is incorporated herein by reference. Information required by Item 405 of Regulation S-K is provided in the Proxy Statement at page 20 under the caption "Additional Information Regarding Directors and Officers - Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. This item is omitted pursuant to paragraph (3) of General Instruction "G" - Information to be Incorporated by Reference. Information required by Item 402 of Regulation S-K is provided in the Proxy Statement at pages 11-24 under the captions "Remuneration of Outside Directors", "Summary Compensation Table", "Option/SAR Grants in Last Fiscal Year", "Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values", "Long-Term Incentive Plans - Awards in Last Fiscal Year" and "Certain Information As To Executive Officers", all of which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. This item has been omitted pursuant to paragraph (3) of General Instruction "G" - "Information to be Incorporated by Reference". Information required by Item 403 of Regulation S-K is provided at page 1 of the Proxy Statement in the introductory information to the Proxy Statement and at pages 7-8 of the Proxy Statement under the caption "Beneficial Ownership of Summit Common Stock by Directors and Executive Officers", all of which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. This item is omitted pursuant to paragraph (3) of Instruction "G" - "Information to be Incorporated by Reference". Information required by Item 404 of Regulation S-K is provided in the Proxy Statement at page 20 under the caption "Additional Information Regarding Directors and Officers", which is incorporated herein by reference. 24 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a) (1) Financial statements, Summit Bancorp. and Subsidiaries: Page* ----- Consolidated Balance Sheets - December 31, 1996 and 1995 .................... 32 Consolidated Statements of Income - Three Years Ended December 31, 1996 ..... 33 Consolidated Statements of Cash Flows - Three Years Ended December 31, 1996 ...................................................... 34 Consolidated Statements of Shareholders' Equity - Three Years Ended December 31, 1996 ...................................................... 35 Notes to Consolidated Financial Statements .................................. 36 Management's and Independent Auditors' Report ............................... 51 Unaudited Quarterly Financial Data .......................................... 54
Financial statement schedules are omitted as the required information is not applicable or the information is presented in the financial statements or related notes thereto. a) (2) Other Exhibits (All references to Forms 8-K, 10-K, 10-Q, 8-A, S-1, S-3, S-4, S-8 and other Forms provided for by the Securities Act of 1933, Securities Exchange Act of 1934 or the Trust Indenture Act of 1940 refer to Securities and Exchange Commission File No. 1-6451 of Summit Bancorp., unless otherwise specifically noted below. Specific exhibits are numbered in accordance with Item 601 of Regulation S-K): (2) Articles of incorporation; By-Laws. A. Restated Certificate of Incorporation of Summit Bancorp., as restated March 1, 1996 (incorporated by reference to Exhibit (3)A. on Form 10-K for the year ended December 31, 1995). B. By-Laws of Summit Bancorp., as restated October 18, 1995 (incorporated by reference to Exhibit (3)B. on Form 10-K for the year ended December 31, 1995). (3) Instruments defining the rights of security holders, including indentures. A. Rights Agreement, dated as of August 16, 1989, by and between Summit Bancorp. (under former name UJB Financial Corp.) and First Chicago Trust Company of New York, as Rights Agent (incorporated by reference to Exhibit 2 to the Registration Statement on Form 8-A, filed August 28, 1989) (File No. 1-6451). B. Indenture, dated as of November 1, 1972, between Summit Bancorp. (under former name United Jersey Banks) and The Bank of New York, as Trustee, for $20,000,000 of 7 3/4% Sinking Fund Debentures due November 1, 1997 (incorporated by reference to Exhibit 4(a) to Amendment No. 2 to Registration Statement No. 2-45397 on Form S-1, filed October 25, 1972). C. Purchase Agreement, dated October 25, 1972, between Summit Bancorp. (under former name United Jersey Banks) and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Brothers, for 7 3/4% Sinking Fund Debentures (incorporated by reference to Exhibit I (b) to Amendment No. 2 to Registration Statement No. 2-45397 on Form S-1, filed October 25, 1972). - ---------- *Refers to the respective page numbers of Summit Bancorp. 1996 Annual Report to Shareholders included as Exhibit 13. Such pages are incorporated herein by reference. 25 26 D. Note Agreement, dated as of August 19, 1993, between Summit Bancorp. (under former name UJB Financial Corp.) and The Northwestern Mutual Life Insurance Company relating to $20,000,000 of 7.95% Senior Notes Due August 25, 2003 (incorporated by reference to Exhibit (4)D. on Form 10-Q for the quarter ended September 30, 1993). E. (i) Fiscal and Paying Agency Agreement, dated as of June 30, 1993, between Summit Bank, as issuer, and Summit Bank, as fiscal and paying agent acting through its Trust Department, relating to $50,000,000 of 6 3/4% Subordinated Notes due June 15, 2003 of Summit Bank (incorporated by reference to Exhibit (4)E.(i) on Form 8-K, dated April 11, 1996), and (ii) Specimen of Global Certificate for 6 3/4% Subordinated Notes due June 15, 2003 of Summit Bank (incorporated by reference to Exhibit (4)E.(ii) on Form 8-K, dated April 11, 1996). F. (deleted) G. (i) Subordinated Indenture, dated as of December 1, 1992, between Summit Bancorp. (under former name UJB Financial Corp.) and Citibank, N.A., Trustee, relating to $175,000,000 of 8 5/8% Subordinated Notes Due December 10, 2002 of Summit Bancorp. (incorporated by reference to Exhibit (4) G. on Form 10-K for the year ended December 31, 1992), and (ii) Specimen of Summit Bancorp.'s 8 5/8% Subordinated Notes Due December 10, 2002 (incorporated by reference to Exhibit 4 on Form 8-K, dated December 10, 1992). (10) MATERIAL CONTRACTS A. Converted Summit Bancorporation Stock Option Plan of Summit Bancorp. (incorporated by reference to Exhibit 10 to Registration Statement No. 333-02625 on Form S-8, filed April 17, 1996). B. (i) Master Agreement of Lease, dated January 26, 1982, between Summit Bancorp. (under former name United Jersey Banks) and Sha-Li Leasing Associates, Inc. relating to equipment leases in excess of $10,000,000 in aggregate lease obligations, including form of Equipment Schedule (incorporated by referenced to Exhibit (10) B. (i) on Form 10-Q for the quarter ended September 30, 1993), (ii) Assignment and Assumption of Equipment Lease, effective December 31, 1991, between Summit Bancorp. (under former name UJB Financial Corp.) and UJB Financial Service Corporation (relating to assignment of Master Agreement of Lease) (incorporated by reference to Exhibit (10) B. (ii) on Form 10-Q for the quarter ended September 30, 1993), and (iii) Form of Guaranty Agreement between Summit Bancorp. (under former name UJB Financial Corp.) and various lenders under the Master Agreement of Lease relating to certain equipment leases in excess of $10,000,000 in aggregate lease obligations (incorporated by reference to Exhibit (10) B. (iii) on Form 10-Q for the quarter ended September 30, 1993). *C. (i) Summit Bancorp. 1993 Incentive Stock and Option Plan (incorporated by reference to Attachment A to the Proxy Statement of Registrant dated April 12, 1996), (ii) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10) C. (ii) on Form 10-Q for the quarter ended June 30, 1993), (iii) Compensation Committee Interpretation of Section 5 (e) (ii) (F) (incorporated by reference to Exhibit (10) C. (iii) on Form 10-Q for the quarter ended March 31, 1994), and (iv) Compensation Committee Interpretation of Stock Incentive Plans adopted June 19, 1996 (incorporated by reference to Exhibit (10)C.(iv) on Form 10-Q for the quarter ended June 30, 1996). *D. (i) UJB Financial Corp. (former name of Summit Bancorp.) 1990 Stock Option Plan (incorporated by reference to Exhibit (10) to Registration Statement No. 33-36209 on 26 27 Form S-8, filed July 26, 1990), and (ii) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10) C. (ii) on Form 10-Q for the quarter end June 30, 1993). *E. Supplemental Executive Retirement Plan of The Summit Bancorporation (incorporated by reference to Exhibit (10)E. on Form 8-K, dated April 11, 1996). *F. Description of Incentive Plan approved January 20, 1982 (incorporated by reference to Exhibit (10)F. on Form 10-K for the year ended December 31, 1994). G. (i) Deferred Compensation Plan for Directors, as revised October 17, 1979, (incorporated by reference to Exhibit (10) G. (i) on Form 10-K for the year ended December 31, 1994), and (ii) Amendment adopted April 25, 1994 (incorporated by reference to Exhibit (10) G. (ii) on Form 10-K for the year ended December 31, 1994). *H. (i) Agreement dated April 2, 1981 between Summit Bancorp. (under former name United Jersey Banks) and T. Joseph Semrod (incorporated by reference to Exhibit (10) H. (i) on Form 10-K for the year ended December 31, 1994), with (ii) Amendment No. I dated May 5, 1981 (incorporated by reference to Exhibit (10) H.(ii) on Form 10-K for the year ended December 31, 1994, (iii) Amendment No. 2 dated December 15, 1982 (incorporated by reference to Exhibit (10) H. (iii) on Form 10-K for the year ended December 31, 1994), and (iv) Amendment No. 3 dated August 20, 1986 (incorporated by reference to Exhibit (10) H. (iv) on Form 10-K for the year ended December 31, 1994). *I. (i) Employment Agreement, dated March 1, 1996, between Summit Bancorp. and Robert G. Cox (incorporated by reference to Exhibit (10)I.(i) on Form 10-K for the year ended December 31, 1995), and (ii) Agreement, dated as of September 1, 1995, between The Summit Bancorporation (predecessor corporation to Summit Bancorp.) and Robert G. Cox assumed by Summit Bancorp. (incorporated by reference to Exhibit (10)I.(ii) on Form 10-K for the year ended December 31, 1995). J. Retirement Program for Outside Directors of Franklin State Bank. K. Franklin State Bank Deferred Compensation Plan adopted January 10, 1984. *L. (i) United Jersey Banks (former name of Summit Bancorp.) 1982 Stock Option Plan (incorporated by reference to Exhibit 4 to Registration Statement No. 2-78500 on Form S-8, filed July 21, 1982) with (ii) Amendment No. 1, dated June 16, 1984 (incorporated by reference to Exhibit (10) L. (ii) on Form 10-K for the year ended December 31, 1994), (iii) Amendment No. 2, dated December 19, 1990 (incorporated by reference to Exhibit (10)L.(iii) on Form 10-K for the year ended December 31, 1995), and (iv) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10) C. (ii) on Form 10-Q for the quarter ended June 30, 1993). *M. (i) Retirement Restoration Plan, adopted April 19, 1983 (incorporated by reference to Exhibit (10) M.(i) on Form 10-K for the year ended December 31, 1994), (ii) Supplemental Retirement Plan, adopted August 16, 1989 (incorporated by reference to Exhibit (10) M. (ii) on Form 10-K for the year ended December 31, 1994), (iii) Written Consent of UJB Financial Corp. (former name of Summit Bancorp.) Benefits Committee interpreting the Retirement Restoration Plan, adopted August 30, 1989 (incorporated by reference to Exhibit (10) M. (iii) on Form 10-K for the year ended December 31, 1994), and (iv) Amendments to the Retirement Restoration Plan and Supplemental Retirement Plan adopted April 25, 1994 (incorporated by reference to Exhibit (10) M. (iv) on Form 10-K for the year ended December 31, 1994). 27 28 N. (i) Equipment Lease Guaranty dated as of August 31, 1992 by Summit Bancorp. (under former name UJB Financial Corp.) to Sanwa General Equipment Leasing, Inc. (incorporated by reference to Exhibit (10) N. (i) on Form 10-Q for the quarter ended March 31, 1993), and (ii) Equipment Lease Agreement dated as of August 31, 1992 and Equipment Schedule Nos. A-1 and A-2 dated as of August 31, 1992 between Sanwa General Equipment Leasing, Inc. and UJB Financial Service Corporation, United Jersey Bank, United Jersey Bank/Central, N.A. (predecessor bank to United Jersey Bank) and United Jersey Bank/South, N.A. (predecessor bank to United Jersey Bank), pursuant to Equipment Lease Agreement dated as of August 31, 1992, for five year lease of furniture, fixtures and equipment (incorporated by reference to Exhibit (10) N. (ii) on Form 10-Q for the quarter ended March 31, 1993). O. (i) Equipment Lease Guaranty dated as of August 31, 1992 by Summit Bancorp. (under former name UJB Financial Corp.) to MetLife Capital Corporation (incorporated by reference to Exhibit (10) O. (i) on Form 10-Q for the quarter ended March 31, 1993), and (ii) Equipment Schedule Nos. B-1 and B-2 dated as of August 31, 1992 between MetLife Capital Corporation and UJB Financial Service Corporation, United Jersey Bank, United Jersey Bank/Central, N.A. (predecessor bank to United Jersey Bank) and United Jersey Bank/South, N.A. (predecessor bank to United Jersey Bank) pursuant to Equipment Lease Agreement dated as of August 31, 1992 between Sanwa General Equipment Leasing, Inc. and United Jersey Bank, United Jersey Bank/ Central, N.A. (predecessor bank to United Jersey Bank) and United Jersey Bank/South, N.A. (predecessor bank to United Jersey Bank), for five year lease of furniture, fixtures and equipment (incorporated by reference to Exhibit (10) O. (ii) on Form 10-Q for the quarter ended March 31, 1993). P. Twenty-year real estate lease executed and dated December 12, 1988 from Hartz Mountain Industries, Inc. for real property located in Ridgefield Park, New Jersey used as a data processing facility (incorporated by reference to Exhibit (10) P. on Form 10-K for the year ended December 31, 1993). Q. (i) Twenty-five year real property lease, dated June 5, 1990, between Summit Bancorp. (under name of predecessor corporation The Summit Bancorporation) and Hartz Mountain Industries, Inc. for data processing and operations center located in Cranford, New Jersey (incorporated by reference to Exhibit (10)Q.(i) on Form 8-K, dated April 11, 1996), and (ii) Lease Modification Agreement, dated February 22, 1995 and effective October 1, 1994, between Summit Bancorp. (under name of predecessor corporation The Summit Bancorporation) and Hartz Mountain Industries, Inc. relating to the twenty-five year lease for data processing and operations center in Cranford, New Jersey (incorporated by reference to Exhibit (10)Q.(ii) on Form 8-K, dated April 11, 1996). R.-V. (deleted) W. (i) Retirement Plan for Outside Directors of UJB Financial Corp., (former name of Summit Bancorp.), as amended and restated February 20, 1991 (incorporated by reference to Exhibit (10)W.(i) on Form 10-K for the year ended December 31, 1995), (ii) Interpretation, dated March 15, 1993, of the Retirement Plan for Outside Directors of UJB Financial Corp. (former name of Summit Bancorp.) (incorporated by reference to Exhibit (10) W. (ii) on Form 10-K for the year ended December 31, 1992), and (iii) Amendment adopted April 25, 1994 (incorporated by reference to Exhibit (10) W. (iii) on Form 10-K for the year ended December 31, 1994). X.-DD. (deleted) 28 29 *EE. (i) Form of Termination Agreement between Summit Bancorp. (under former name UJB Financial Corp.) and each of T. Joseph Semrod, John G. Collins, John R. Howell, John R. Haggerty, Stephen H. Paneyko, Larry L. Betsinger, Alfred M. D'Augusta, John R. Feeney, William J. Healy, Sabry J. Mackoul, Richard F. Ober, Jr., Dennis Porterfield, Alan N. Posencheg, Gary F. Simmerman, Edmund C. Weiss, with (ii) Amendment No. 1, dated December 20, 1989, (iii) Amendment No. 2, dated October 16, 1991, and (iv) Amendment No. 3, dated December 16, 1992 (incorporated by reference to Exhibit (10) EE. (iv) on Form 8-K, dated January 19, 1993). *FF. (i) UJB Financial Corp. (former name of Summit Bancorp.) Executive Severance Plan, as amended through December 16, 1992 (incorporated by reference to Exhibit (10) FF. on Form 8-K, dated January 19, 1993), and (ii) Amendment adopted April 25, 1994 (incorporated by reference to Exhibit (10) FF. (ii) on Form 10-K for the year ended December 31, 1994). GG.-II. (deleted) JJ. (i) Retirement Plan for Outside Directors of Commercial Bancshares, Inc. adopted May 1, 1986, and (ii) Compensation Committee Interpretation, dated July 19, 1993 (incorporated by reference to Exhibit (10) JJ. (ii) on Form 10-Q for the quarter ended June 30, 1993). KK. (i) Commercial Bancshares, Inc. Directors Deferred Compensation Plan adopted May 20, 1986 (substantially identical plans were adopted by former subsidiaries of Commercial Bancshares, Inc.) and (ii) related Master Trust Agreement. LL. (i) United Jersey Banks (former name of Summit Bancorp.) 1987 Stock Option Plan, with (ii) Amendment dated April 25, 1989, (incorporated by reference to Exhibit (10) LL. (ii) on Form 10-K for the year ended December 31, 1994), (iii) amendment dated June 30, 1990, and (iv) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10) C. (ii) on Form 10-Q for the quarter ended June 30, 1993). (13) Summit Bancorp 1996 Annual Report to Shareholders (21) Subsidiaries of the registrant. (23) Consents of Experts and Counsel A. Independent Auditors' Consent - KPMG Peat Marwick LLP (27) Financial Data Schedule - Summit Bancorp. - ---------- * Management contract or compensatory plan or arrangement. None of the Exhibits listed above other than the Summit Bancorp 1996 Annual Report to Shareholders are furnished herewith (other than certain copies filed with the Securities and Exchange Commission). Any of such Exhibits will be furnished to any requesting security holder upon payment of a fee of 15 cents per page. Contact Lori A. Wierzbinsky, Assistant Corporate Secretary, Summit Bancorp., P.O. Box 2066, Princeton, NJ 08543-2066 for a determination of the fee necessary to fulfill any request. 29 30 b) Reports on Form 8-K. In a current report on Form 8-K dated October 16, 1996, under Item 5, Other Events, the Company reported the amount of the assessments to recapitalize the Savings Association Insurance Fund for Summit Bancorp. and for Central Jersey Financial Corporation, which were accrued as of September 30, 1996. In a current report on Form 8-K dated December 10, 1996, under Item 5, Other Events, the Company reported the Superior Court of New Jersey, Appellate Division's affirmation in part and reversal in part of the November 7, 1994 decision of the Superior Court of New Jersey, Law Division in Cushman & Wakefield of New Jersey, Inc. v. Alexander Summer Company and United Jersey Bank (former name of Summit Bank NJ). 30 31 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SUMMIT BANCORP. Dated: March 27, 1997 By: /s/ J.R. HAGGERTY ----------------------------- John R. Haggerty Senior Executive Vice President/Finance Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- ---- /s/ T. JOSEPH SEMROD Chairman of the Board and March 27, 1997 ------------------------- Director (Chief Executive Officer) T. Joseph Semrod /s/ ROBERT G. COX President and Director March 27, 1997 ------------------------- Robert G. Cox /s/ JOHN G. COLLINS Vice Chairman and Director March 27,1997 ------------------------- John G. Collins /s/ JOHN R. HOWELL Vice Chairman and Director March 27, 1997 ------------------------- John R. Howell /s/ J. R. HAGGERTY Senior Executive Vice March 27, 1997 ------------------------- President/Finance (Principal John R. Haggerty Financial Officer) /s/ WILLIAM J. HEALY Executive Vice President and March 27, 1997 ------------------------- Comptroller (Principal accounting William J. Healy Officer) /s/ S. ROGERS BENJAMIN Director March 27, 1997 ------------------------- S. Rogers Benjamin /s/ ROBERT L. BOYLE Director March 27, 1997 ------------------------- Robert L. Boyle /s/ JAMES C. BRADY, JR. Director March 27, 1997 ------------------------- James C. Brady, Jr. /s/ T. J. DERMOT DUNPHY Director March 27, 1997 ------------------------- T. J. Dermot Dunphy /s/ ANNE EVANS ESTABROOK Director March 27, 1997 ------------------------- Anne Evans Estabrook /s/ ELINOR J. FERDON Director March 27, 1997 ------------------------- Elinor J. Ferdon /s/ FRED G. HARVEY Director March 27, 1997 ------------------------- Fred G. Harvey
31 32 /s/ FRANCIS J. MERTZ Director March 27, 1997 ------------------------- Francis J. Mertz /s/ GEORGE L. MILES, JR. Director March 27, 1997 ------------------------- George L. Miles, Jr. /s/ HENRY S. PATTERSON II Director March 27, 1997 ------------------------- Henry S. Patterson II /s/ THOMAS D. SAYLES, JR. Director March 27, 1997 ------------------------- Thomas D. Sayles, Jr. /s/ RAYMOND SILVERSTEIN Director March 27, 1997 ------------------------- Raymond Silverstein /s/ ORIN R. SMITH Director March 27, 1997 ------------------------- Orin R. Smith /s/ JOSEPH M. TABAK Director March 27, 1997 ------------------------- Joseph M. Tabak /s/ DOUGLAS G. WATSON Director March 27, 1997 ------------------------- Douglas G. Watson
32 33 EXHIBIT INDEX _____________ Exhibit No. Description __________ ________________________________________________________________ (10)J. Retirement Program for Outside Directors of Franklin State Bank. K. Franklin State Bank Deferred Compensation Plan adopted January 10, 1984. EE.(i) Form of Termination Agreement between Summit Bancorp. (under former name UJB Fiancial Corp.) and each of T. Joseph Semrod, John H. Colling, John R. Howell, John R. Haggerty, Stephen H. Paneyko, Larry L. Betsinger, Alfred M. D'Augusta, John R. Feeney, William J. Healy, Sabry J. Mackoul, Richard F. Ober, Jr., Dennis Porterfield, Alan N. Posencheg, Gary F. Simmerman, and Edmund C. Weiss. (ii) Amendment No. 1, dated December 20, 1989 to the Form of Termination Agreement between Summit Bancorp. (under former name UJB Financial Corp.) and each of T. Joseph Semrod, John G. Collins, John R. Howell, John R. Haggerty, Stephen H. Peneyko Larry L. Betsinger, Alfred M. D'Augusta, John R. Feeney, William J. Healy, Sabry J. Mackoul, Richard F. Ober, Jr., Dennis Porterfield, Alan N. Posencheg, Gary F. Simmerman, and Edmund C. Weiss. (iii) Amendment No. 2, dated October 16, 1991 to the Form of Termination Agreement between Summit Bancorp. (under former name UJB Financial Corp.) and each of T. Joseph Semrod, John G. Collins, John R. Howell, John R. Haggerty, Stephen H. Paneyko, Larry L. Betsinger, Alfred M. D'Augusta, John R. Feeney, William J. Healy, Sabry J. Mackoul, Richard F. Ober, Jr., Dennis Porterfield, Alan N. Posencheg, Gary F. Simmerman, and Edmund C. Weiss. JJ. Retirement Plan for Outside Directors of Commercial Bancshares, Inc. adopted May 1, 1986. KK. (i) Commercial Bancshares, Inc. Directors Deferred Compensation Plan adopted May 20, 1986. (ii) Related Master Trust Agreement of the Commercial Bancshares, Inc. Directors Deferred Compensation Plan adopted May 20, 1986. LL. (i) United Jersey Banks (former name of Summit Bancorp.) 1987 Stock Option Plan. (13) Summit Bancorp. 1996 Annual Report to Shareholders. (21) Subsidiaries of the Registrant. (23)A. Independent Auditors' Consent-KPMG Peat Markwick LLP (27) Summit Bancorp. financial data schedule-December 31, 1996 EX-10.J 2 RETIREMENT PROGRAM FOR OUTSIDE DIRECTORS 1 EXHIBIT (10)J. 2 [Franklin State Logo] RESOLUTION ESTABLISHING A RETIREMENT PROGRAM FOR OUTSIDE DIRECTORS OF FRANKLIN STATE BANK BE IT RESOLVED by the Board of Directors of Franklin State Bank that a Retirement Program be and is hereby established for present and future outside directors of Franklin State Bank (Bank) under the following terms and conditions: 1. Any director who is not a full time officer or employee of the Bank at the time of retirement from the Board of Directors, shall be considered an outside director and be eligible under the Retirement Program subject to the service and age requirements hereinafter set forth. 2. To receive the benefits of this program, a Director must have served as a member of the Board of Directors for a cumulative period of not less than 10 years, subject to the modification hereinafter set forth in the provisions pertaining to change of control, and subject further to the provision that all directors in office at the date of adoption of this resolution and program shall be considered as having served for the maximum period of 20 years and shall be fully vested for retirement and death benefits in the amount of $100,000. 3. A director must have retired and attained the age of 65 years before he can commence receiving the retirement benefits hereinafter set forth, and shall receive such benefits whether or not he is still a member of the board at the time he attains the age of 65 years, if he has theretofore satisfied the service requirement and his rights have thereby become vested. 3 4. Retirement benefits shall be calculated on the basis of $5,000 for ever year of service on the Board of Directors, to a maximum of 20 years, the total sum to be calculated and divided into 10 equal amounts payable annually commencing on the anniversary date of retirement or the 65th birthday, whichever is later. 5. A death benefit equal to the maximum retirement benefit of $100,000 shall be paid in a lump sum to the designated beneficiary or estate of any Director, whether or not the Director was eligible for a retirement benefit at the time of his death. In the event of death during the 10 year period following retirement and commencement and payment of the annual benefits, the beneficiary or the estate shall be paid the balance of the retirement benefit constituting the difference between the amount of benefits received to date of death subtracted from the total retirement benefits of the Director. 6. In the event of a "change of control" of the ownership of the Bank, or its parent company, Franklin Bancorp (Bancorp), all outside Directors will be immediately eligible and may then, or any time thereafter, elect to receive a lump sum payment of the maximum retirement benefit of $100,000, whether or not they were otherwise eligible for a retirement benefit at the time of a change of control. "Change of Control", as to both Bank and Bancorp, for the purposes of this program, shall be deemed to have occurred if: a) Any individual, corporation or firm becomes the beneficial owner of 20% or more of the outstanding common stock of Bancorp, other than pursuant to a sale from Bancorp, its Officers or Directors, approved by a majority of its Board of Directors; or b) Pursuant to any arrangement or understanding with any person acquiring beneficial ownership of 5% or more, or making a tender offer for beneficial ownership of 5% or more, of the outstanding common stock of Bancorp, whereby any persons are elected or designated as directors of Bancorp, otherwise than at a meeting of security holders, and the persons so elected or designated constitute a majority of the Board; or -2- 4 [Franklin Logo] c) In any solicitation of proxies from the security holders of Bancorp, proxies are solicited by or on behalf of anyone other than the Board and, upon the conclusion of such solicitation, a number of directors of Bancorp equal to one-half of the entire Board who were in office prior to such solicitation are not longer in office; or d) Either Bank or Bancorp is merged or consolidated with any other bank or corporation without approval of the Board of Directors of Bancorp; or e) The Bank is dissolved or liquidated. 7. A director shall agree in writing to abide by the following stipulations during the period in which the retirement benefit is being paid: a) A retired Director will not directly or indirectly have an interest in, or be associated with, in any capacity (whether as officer, director, stockholder of more that 2% of the outstanding shares, partner, associate, employee, consultant, owner, or otherwise) of any corporation, firm or enterprise carrying on a business competitive with that of the Bank in its geographical trade area, other than with written approval of the Bank. b) A retired Director will not disclose, inadvertently or otherwise, any confidential information concerning the Bank's operations, future plans or methods of doing business. c) A retired Director will not solicit employees of the Bank for the purpose of obtaining confidential information or securing their employment elsewhere. d) A retired Director will provide reasonable advisory and consulting services as requested by the Bank from time to time. -3- 5 [FRANKLIN LOGO] 8. A copy of this Resolution shall be given to all present and future Directors of the Bank and upon the signing of a copy of the same by each director, acknowledging receipt and agreeing to the terms and conditions herein set forth, this resolution shall constitute a binding contract by and between the director and Franklin State Bank, its successors and assigns. EX-10.K 3 FRANKLIN STATE BANK DEFERRED COMPENSATION PLAN 1 EXHIBIT (10)K. 2 - ------------------------------------------------------------------------------ FRANKLIN STATE BANK DEFERRED COMPENSATION PLAN - ------------------------------------------------------------------------------ PLAN DOCUMENT Compensation Committee approval - December 13, 1983 Board of Directors approval - January 10, 1984 /s/ Marian L. Hockenbury - ------------------------ Marian L. Hockenbury Assistant Secretary 3 - ------------------------------------------------------------------------------ FRANKLIN STATE BANK DEFERRED COMPENSATION PLAN - ------------------------------------------------------------------------------
Section Title Page - ------- ----- ---- 1 Purpose....................................................... 1 2 Definitions................................................... 1 3 Administration................................................ 2 4 Deferral of Compensation...................................... 3 5 Rights of Participants........................................ 5 6 Non-Transferability of Rights Under the Plan.................. 5 7 Designation of Beneficiary.................................... 5 8 Agreements with Participants.................................. 6 9 Withholding Taxes............................................. 6 10 No Employment Rights.......................................... 6 11 Applicable Law................................................ 6 12 Amendments, Modification and Termination...................... 7 13 Relationship to Qualified Plans............................... 7 14 Effective Date................................................ 7 15 Notices....................................................... 7 16 Severability of Provisions.................................... 8 17 Headings and Captions......................................... 8
4 - ------------------------------------------------------------------------------ FRANKLIN STATE BANK DEFERRED COMPENSATION PLAN - ------------------------------------------------------------------------------ 1. Purpose The purpose of the Franklin State Bank Deferred Compensation Plan (the "Plan") is to enable the Corporation (as hereinafter defined) and its subsidiaries to attract, retain and motivate officers and other key employees by offering competitive compensation opportunities including the elective deferral of amounts which would be payable as salary and pursuant to the Corporation's Management Performance Program. 2. Definitions Except where the context otherwise indicates, the following definitions apply: (a) "Bankruptcy" shall mean that (i) the Company is adjudicated bankrupt, or a trustee or a receiver is appointed for the Company, or for all or a substantial part of its property in any involuntary proceeding, or any court has taken jurisdiction of all or a substantial part of the property of the Company in any involuntary proceeding for the reorganization, dissolution, liquidation or winding up of the Company and such trustee or receiver has not been discharged or such jurisdiction relinquished or vacated or stayed on appeal or otherwise stayed within 60 days; or (ii) the Company has filed a petition or answer, not denying jurisdiction, in bankruptcy or under Chapter 11 of the Federal Bankruptcy Act or any similar law, state or Federal, whether now or hereafter existing, or such a petition filed against the Company shall be approved and not vacated or stayed within 60 days. (b) "Committee" means the Compensation Committee consisting of three (3) or more members as may be appointed by the Board of Directors to administer the Plan pursuant to Section 3(a) hereof. (c) "Corporation" means Franklin State Bank, its subsidiary companies and operating divisions. (d) "Deferred Compensation Account" is as defined in Section 4(a) of this Plan. -1- 5 (e) "Insolvency" shall mean that the Company makes an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall consent to the appointment of a receiver or trustee or liquidation of all or a substantial part of its property or shall have failed within 60 days to pay or bond or otherwise discharge any judgment or attachment which is not stayed on appeal or otherwise being contested in good faith. (f) "Performance Year" means an operating year of the Corporation beginning January 1 and ending December 31. (g) "Participant" means any officer of the Corporation who has been selected by the Committee as eligible to participate in this Plan. (h) "Retirement" means discontinuance of employment with the Corporation by a Participant at such Participant's normal retirement date as provided in the applicable pension or retirement plan or, with the consent of the Committee, at an earlier date. (i) "Termination of Employment" means the discontinuance of employment of a Participant with the Corporation for any reason whatsoever, other than a change of employment within the Corporation. 3. Administration (a) The Plan shall be administered by the Committee. (b) The Committee shall have full and exclusive authority and responsibility, subject to express provisions of the Plan as amended or modified from time to time, (i) to administer the Plan, (ii) to interpret the Plan, (iii) to establish, amend and rescind rules and regulations for administering the Plan as the Committee deems necessary or appropriate, (iv) to select Participants, (v) to determine the applicable rate of interest or interest equivalent payable on amounts deferred pursuant to the Plan and (vi) to make all other determinations and to take all other steps deemed necessary or advisable for the administration of the Plan. The Committee shall not be bound to any standards of uniformity or similarity of action, interpretation or conduct in the discharge of its duties hereunder, regardless of the apparent similarity of the matters coming before it. Its determination shall be binding on all parties. (c) The Committee may designate an officer of the Corporation, other employees of the Corporation or competent professional advisors to assist the Committee in the administration of the Plan and may grant authority to such persons to execute agreements or other documents on behalf of the Committee. -2- 6 (d) The composition of the Committee and any or all powers and functions thereof, may at any time and from time to time be amended, modified or terminated by the President of the Corporation. (e) The Committee may employ such legal counsel, consultants or accountants as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel, consultant or accountant and any computation received from any such consultant or accountant. No member of the Committee, the Corporation or the Board of Directors shall be liable for any action or determination made in good faith with respect to the Plan. To the maximum extent permitted by applicable law, each member of the Committee shall be indemnified and held harmless by the Corporation against any cost or expense of liability (including, without limitation, reasonable counsel fees and any sums paid in settlement of a claim with the approval of the Corporation) arising out of any act of omission to act in connection with the Plan and its administration unless arising out of such member's own fraud or bad faith. Expenses incurred by the Committee in the engagement of such counsel, consultant or accountant shall be paid by the Corporation. (f) All costs and expenses involved in administering the Plan as provided herein, or incident thereto, shall be borne by the Corporation. (g) The Committee may, in its sole discretion, make appropriate adjustments with respect to the terms of the Plan and its applicability to any Participant including termination of individual deferral agreements, or suspension of any provision of such agreements in the event (i) the employment status or relationship between the Corporation and such Participant is changed, (ii) any of the anticipated benefits of deferral pursuant to this Plan or any provision hereof are altered by reason of any interpretation or of change in law, policy or regulation, (iii) in the event there is a change in the common control of the Corporation, (iv) the Company's insolvency or (v) the Company's entering the state of bankruptcy. 4. Deferral of Compensation (a) (i) A participant may request the Committee to defer all or any specified portion of the amounts payable as compensation by the Corporation including salary (in excess of the Social Security maximum wage base) and cash awards and Performance Shares payable pursuant to the Corporation's Management Performance Program provided, however, that each request to defer must be with respect to at least $1,000. The Committee in its sole discretion may accept or reject such request. Any amount deferred will be credited to a separate bookkeeping account in the name of the Participant (the "Deferred Compensation Account") on the date such amount would otherwise have become payable to the Participant. -3- 7 However, funds shall not be irrevocably set aside and the employee's sole claim for amounts deferred shall be as an unsecured general creditor of the Corporation, pursuant to Article 5 of this Agreement. (ii) Amounts deferred shall be credited with an interest rate or an interest equivalent established annually by the Committee in its sole discretion. Interest or interest equivalents shall accrue on the amount deferred from the date such amount is credited to the Deferred Compensation Account until the date of payment on terms fixed by the Committee at the time of the election by the Participant to defer such amount. In the Committee's sole discretion, such interest equivalent may be determined by reference to a rate paid by a specified financial institution or hypothetical investment(s) Treasury bills, stocks, bonds, mutual fund shares or other securities, or any other medium of investment as determined by the Committee. (iii) The interest rate or terms of such interest equivalent in effect at the time of such deferral election shall remain in effect during the entire period of deferral, unless upon request of a Participant, the Committee, in its sole discretion, changes the interest rate or amends the terms of such interest equivalent applicable to such Participant's Deferred Compensation Account. (b) (i) A request to defer payment of salary must be made in writing to the Corporation on or before the fifteenth day prior to the end of the fiscal quarter preceding the fiscal quarter in which earned. The Committee shall accept or reject such request on or before the last day of such quarter. An election to defer payment of cash awards under the Management Performance Program must be made in writing to the Corporation on or before September 30th of the Performance Year in which earned. An election to defer cash payment of Performance Shares under the Management Performance Program must be made in writing to the Corporation at least 180 days prior to the end of the five year vesting period for such Performance Shares. Such written requests shall be made in a manner determined by the Corporation. The Committee, in its sole discretion may modify such requests in the case of disability, hardship or unusual circumstances. (ii) Each deferral request filed with the Corporation will specify the date or dates during or after employment on which the amounts credited to the Deferred Compensation Account are to be paid to the Participant, or the legal representative or beneficiary of the Participant. (c) Notwithstanding the request made by a Participant, (i) as soon as practicable following his/her Termination of Employment other than by reason of Retirement, disability (as determined by the Committee) or death, subject to the provisions of Section 3(g) of this Plan, the total amount then credited to the Participant's Deferred Compensation Account shall be paid to him/her, and (ii) within ten (10) years after his/her Termination of Employment by reason of Retirement, disability (as determined by the Committee) or death, all amounts, if any, then credited to the Participant's Deferred Compensation Account shall be paid in a manner irrevocably elected by the Participant at least 90 days prior to any such Termination of Employment, to the -4- 8 Participant of his/her legal representatives or beneficiary, as the case may be. (d) Except as provided in this Plan, a Participant shall not be entitled to, and the Corporation shall not be obligated to pay to such Participant the whole or any part of the amounts credited to his Deferred Compensation Account. 5. Rights of Participants Nothing contained in the Plan and no action taken pursuant to the Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Corporation and any Participant or his/her legal representative or beneficiary, or any other persons. Funds allocated to Deferred Compensation Accounts established by the Corporation in connection with the Plan shall continue to be a part of the general funds of the Corporation, and no individual or entity other than the Corporation shall have any interest in such funds until paid to a Participant, his/her legal representative or beneficiary. If and to the extent that any Participant or his/her legal representative or beneficiary, as the case may be, acquires a right to receive any payment from the Corporation pursuant to the Plan, such right shall be no greater than the right of an unsecured general creditor of the Corporation and shall, if the Participant is indebted to the Corporation (such indebtedness and the amount thereof to be determined by the Committee in its sole discretion), be subject to the right of the Committee to deduct such amount from the amount payable hereunder to the Participant (or his/her legal representative or designated beneficiary, as the case may be). 6. Non-Transferability of Rights Under the Plan No amounts payable or other rights under the Plan shall be sold, transferred, assigned, pledged or otherwise disposed of or encumbered by a Participant. 7. Designation of Beneficiary (a) Subject to applicable law, each Participant shall have the right to file with the Corporation, to the attention of the Committee or such person as may be designated by the Committee, a written designation of one or more persons as the beneficiary who shall be entitled to receive the amount, if any, payable under the Plan upon his/her death. A Participant may from time to time revoke or change such beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant's death, and in no event shall it be effective as of a date prior to such receipt. -5- 9 (b) If no such beneficiary designation is in effect at the time of a Participant's death, or if no designated beneficiary survives the Participant, or if such designation conflicts with the law, the payment of the amount, if any, payable under the Plan upon his/her death shall be made to the Participant's estate. If the Committee is in doubt as to the right of any person to receive any amount, the Committee may retain such amount, without liability for any interest thereon, until the rights thereto are determined, or the Committee may pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan, the Corporation and Committee therefor. 8. Agreements with Participants Each participant shall be required to enter into an agreement with the Corporation which shall contain such provisions, consistent with the provisions of the Plan, as may be established from time to time by the Committee, including any provisions which may be advisable to comply with applicable laws, regulations, rulings, or guidelines of any government authority. 9. Withholding Taxes The Corporation shall have the right to deduct withholding taxes from any payments made pursuant to the Plan, or make such other provisions as it deems necessary or appropriate to satisfy its obligations to withhold federal, state, local or foreign income or other taxes incurred by reason of payments pursuant to the Plan. In lieu thereof, the Corporation shall have the right to the extent permitted by law to withhold the amount of such taxes from any other sums due or to become due from the Corporation to the Participant upon such terms and conditions as the Committee may prescribe. 10. No Employment Rights Nothing in this Plan or any booklet or other document describing or referring to this Plan shall be deemed to confer on any Participant the right to continue in the employ of the Corporation or his/her respective employer or affect the right of such employer to terminate the employment of any such person with or without cause. 11. Applicable Law This Plan and all actions taken hereunder shall be governed by the laws of the State of New Jersey. -6- 10 12. Amendments, Modification and Termination The Committee may from time to time amend, modify or terminate the Plan or any provision hereof. No amendment to or discontinuance or termination of the Plan shall, without the written consent of the Participant, adversely affect any rights of such Participant with respect to amounts previously credited to such Participant's Deferred Compensation Account. The Plan shall continue until terminated by the Committee. 13. Relationship to Qualified Plans Amounts deferred hereunder shall not be included in creditable compensation in computing benefits under the Employees' Retirement Plan. To the extent that exclusion of such deferred compensation adversely affects benefits payable under the Employee Retirement Plan, the Participant shall be entitled to an appropriate supplement approximately equivalent to the benefits the Participant would have received under such plan if such compensation had not been deferred. Such supplement shall be payable at the same time and in the same manner as benefits under the aforementioned plan. 14. Effective Date The Plan is effective as of January 1, 1984 subject to its adoption by the Committee pursuant to authority delegated by the Board of Directors. 15. Notices Each Participant shall be responsible for furnishing the Committee with the current and proper address for the mailing of notices and the delivery of agreements and payments. Any notice required or permitted to be given shall be deemed given if directed to the person to whom addressed at such address and mailed by regular United States mail, first-class and prepaid. If any item mailed to such address is returned as undeliverable to the addressee, mailing will be suspended until the Participant furnishes the proper address. This provision shall not be constructed as requiring the mailing of any notice or notification if the regulations issued under the Employee Retirement Income and Security Act of 1974 deem sufficient notice to be given by the posting of notice in appropriate places or by any other publication device. - 7 - 11 16. Severability of Provisions If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof and this Plan shall be constructed and enforced as if such provisions had not been included. 17. Headings and Captions The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan and shall not be employed in the construction of the Plan. /s/ Kenneth A. Bott /s/ Anthony D. Schoberl -------------------------------- ----------------------------------- Kenneth A. Bott Anthony D. Schoberl 1/31/84 Jan. 31, 1984 -------------------------------- ----------------------------------- Date Date -8- EX-10.EEI 4 FORM OF TERMINATION AGREEMENT 1 EXHIBIT (10)EE.(i) 2 TERMINATION AGREEMENT THIS AGREEMENT dated and entered into effective and as of the 29th day of December, 1986, by and between United Jersey Banks, a New Jersey corporation (the "Company"), and , residing at New Jersey (the "Executive"). W I T N E S S E T H: WHEREAS, should the Company receive a proposal from a third person, whether solicited by the Company or unsolicited, concerning a possible business combination with or the acquisition of a substantial share of the equity or voting securities of, the Company, the Board of Directors of the Company (the "Board") has deemed it imperative that it and the Company be able to rely on the Executive to continue to serve in his position, and that the Board and the Company be able to receive and rely upon his advice, if they request it, as to the best interests of the Company and its shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks that such a proposal might otherwise create; and WHEREAS, the Company desires to enhance executive morale and its ability to retain existing management; and WHEREAS, the Company desires to reward the Executive for his valuable, dedicated service to the Company or one or more of its subsidiary corporations (each, a "Subsidiary") should his service be terminated under circumstances hereinafter described; and WHEREAS, the Board therefore considers it in the best interests of the Company and its shareholders for the Company to enter into Termination Agreements, in form similar to this Agreement, with certain key executive officers of the Company and one or more of its Subsidiaries; and WHEREAS, the Executive is presently the duly elected and acting President and Chief Executive Officer of United Jersey Bank, and is a key executive with whom the Company has been authorized by the Board to enter into this Agreement; NOW, THEREFORE, to assure the Company of the Executive's continued dedication and the availability of his advice and counsel in the event of any such proposal, to induce the Executive to remain in the employ of the Company or a Subsidiary, and to reward the Executive for his valuable, dedicated service to the Company or a Subsidiary should his service be terminated under circumstances hereinafter described, and for other good and valuable consideration, the receipt and adequacy whereof each party acknowledges, the Company and the Executive agree as follows: -1- 3 1. OPERATION, EFFECTIVE DATE, AND TERM OF AGREEMENT. (a) This Agreement is effective and binding on both parties as of the date hereof. Notwithstanding its present effectiveness, the provisions of paragraphs 3 and 4 of this Agreement shall become operative only when, as and if there has been a "Change in Control" of the Company. For purposes of this Agreement, a "Change in Control" of the Company shall mean a Change in Control of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 ("Exchange Act"); provided that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (including as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty-three and one-third percent (33-1/3%) or more of the combined voting power of the Company's outstanding securities then entitled to vote for the election of directors; or (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof (excluding, for purposes of this calculation, any director who dies during such period); or (iii) the Company shall meet the delisting criteria of the New York Stock Exchange or any successor exchange in respect of the number of publicly-held shares or the number of stockholders holding one hundred (100) shares or more; or (iv) the Board shall approve the sale of all or substantially all of the assets of the Company; or (v) the Board shall approve any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of any event described in clause (i), (ii) or (iii) above. (b) The Company shall be obligated to make the payments referred to in paragraphs 3 and 4 hereof following, and the provisions of paragraph 2 hereof shall apply to, a Change in Control of the Company only if such Change in Control shall have occurred within, or as a result of efforts designed to attain such and known to the parties hereto to have commenced within, five (5) years from the date hereof (or such later date as the Board shall determine). 2. EMPLOYMENT OF EXECUTIVE. Nothing herein shall affect any right which the Executive or the Company or a Subsidiary may otherwise have to terminate the Executive's employment by the Company or a Subsidiary at any tine in any lawful manner, subject always to the Company's providing to the Executive the payments and benefits specified in paragraphs 3 and 4 of this Agreement to the extent hereinbelow provided. In the event any person commences a tender or exchange offer, circulates a proxy statement to the Company's shareholders or takes other steps designed to effect a Change in Control of the Company as defined in paragraph 1 of this Agreement, the Executive agrees that he will not voluntarily leave the employ of the Company or a Subsidiary, and will continue to perform his regular duties and to render the services specified in the recitals of this Agreement, until such person has -2- 4 abandoned or terminated his efforts to effect a Change in Control or until a Change in Control has occurred. Should the Executive voluntarily terminate his employment before any such effort to effect a Change in Control of the Company has commenced, or after any such effort has been abandoned or terminated without effecting a Change in Control and no such effort is then in process, this Agreement shall lapse and be of no further force or effect. 3. TERMINATION FOLLOWING CHANGE IN CONTROL. (a) If any of the events described in paragraph 1 hereof constituting a Change in Control of the Company shall have occurred, the Executive shall be entitled to the benefits provided in paragraph 4 hereof upon the subsequent termination of his employment within the applicable period set forth in paragraph 4 hereof following such Change in Control unless such termination is (i) due to the Executive's death or Retirement; or (ii) by the Company or a Subsidiary by reason of the Executive's Disability or for Cause; or (iii) by the Executive other than for Good Reason. (b) If following a Change in Control the Executive's employment is terminated by reason of his death or Disability, the Executive shall be entitled to death or long-term disability benefits, as the case may be, from the Company no less favorable than those benefits to which he would have been entitled had the death or termination for Disability occurred during the six month period prior to the Change in Control. If prior to any such termination for Disability, the Executive fails to perform his duties as a result of incapacity due to physical or mental illness, he shall continue to receive his Base Salary less any benefits as may be available to him under the Company's or Subsidiary's disability plans until his employment is terminated for Disability. (c) If the Executive's employment shall be terminated by the Company or a Subsidiary for Cause or by the Executive other than for Good Reason, the Company shall pay to the Executive his full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, and the Company shall have no further obligations to the Executive under this Agreement. (d) For purposes of this Agreement: (i) "Disability" shall mean the Executive's incapacity due to physical or mental illness such that the Executive shall have become qualified to receive benefits under the Company's or Subsidiary's long-term disability plans or any equivalent coverage required to be provided to the Executive pursuant to any other plan or agreement, whichever is applicable. (ii) "Retirement" shall mean that the Executive shall have reached the normal retirement date provided in the Company's or Subsidiary's retirement plans applicable to such Executive or any earlier actual retirement by the Executive from his employment with the Company or a Subsidiary. -3- 5 (iii) "For Cause" shall mean: (A) the willful commission by the Executive of a criminal or other act that causes or will probably cause substantial economic damage to the Company or a Subsidiary or substantial injury to the business reputation of the Company or a Subsidiary: (B) the commission by the Executive of an act of fraud in the performance of such Executive's duties on behalf of the Company or a Subsidiary; (C) the continuing willful failure of the Executive to perform the duties of such Executive to the Company or a Subsidiary (other than any such failure resulting from the Executive's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to the Executive by the Personnel Committee of the Board; or (D) the order of a federal or state bank regulatory agency or a court of competent jurisdiction requiring the termination of the Executive's employment. (iv) "Good Reason" shall mean: (A) The assignment by the Company or a Subsidiary to the Executive of duties which (i) are materially different or require travel significantly more time consuming or extensive than the Executive's duties or business travel obligations immediately prior to the Change in Control, or (ii) result, without the Executive's express written consent, in either a significant reduction in the Executive's authority and responsibility as a senior corporate executive of the Company or a Subsidiary when compared to the highest level of authority and responsibility assigned to the Executive at any time during the six (6) month period prior to the Change in Control, or, (iii) without the Executive's express written consent, the removal of the Executive from, or any failure to reappoint or reelect the Executive to, the highest title held since the date six (6) months before the Change in Control, except in connection with a termination of the Executive's employment by the Company or a Subsidiary for Cause, or by reason of the Executive's death, Disability or Retirement; (B) A reduction by the Company or a Subsidiary of the Executive's salary grade or Base Salary, or the failure to grant increases in the Executive's Base Salary on a basis at least substantially comparable to those granted to other executives of the Company or a Subsidiary of comparable title, salary grade and performance ratings made in good faith; -4- 6 (C) The relocation of the Company's principal executive offices (or in the case of an employee of a Subsidiary, the principal executive offices of such Subsidiary) to a location outside the State of New Jersey, or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices (or in the case of an employee of a Subsidiary, the principal executive offices of such Subsidiary) except for required travel on the Company's or a Subsidiary's business to an extent substantially consistent with the Executive's present business travel obligations, or in the event of any relocation of the Executive with the Executive's express written consent, the failure by the Company or a Subsidiary to pay (or reimburse the Executive for) all reasonable moving expenses by the Executive relating to a change of principal residence in connection with such relocation and to indemnify the Executive against any loss realized in the sale of the Executive's principal residence in connection with any such change of residence, all to the effect that the Executive shall incur no loss on an after tax basis; (D) The failure by the Company or a Subsidiary to continue to provide the Executive with substantially the same welfare benefits (which for purposes of this Agreement shall mean benefits under all welfare plans as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended) and perquisites, including participation on a comparable basis in the Company's or a Subsidiary's retirement plans, Incentive Bonus Plan, Savings Incentive Plan, Long-Term Performance Stock Plan, Executive Severance Plan, stock option plans and other plans in which executives of the Company or a Subsidiary of comparable title and salary grade participate, as were provided to the Executive immediately prior to such Change in Control of the Company, or with a package of welfare benefits and perquisites, that, though one or more of such benefits or perquisites may vary from those, including participation on a comparable basis in the Company's or a Subsidiary's retirement plans, Incentive Bonus Plan, Savings Incentive Plan, Long-Term Performance Stock Plan, Executive Severance Plan and stock option plans, is substantially comparable in all material respects to such welfare benefits and perquisites, including participation on a comparable basis in the Company's or a Subsidiary's retirement plans, Incentive Bonus Plan, Savings Incentive Plan, Long-Term Performance Stock Plan, Executive Severance Plan and stock option plans, taken as a whole; or -5- 7 (E) The failure of the Company to obtain the express written assumption of and agreement to perform this Agreement by any successor as contemplated in subparagraph 5(d) hereof. (v) "Dispute" shall mean (i) in the case of termination of employment of an Executive with the Company or a Subsidiary by the Company or a Subsidiary for Disability or Cause, that the Executive challenges the existence of Disability or Cause and (ii) in the case of termination of employment of an Executive with the Company or a Subsidiary by the Executive for Good Reason, that the Company or a Subsidiary challenges the existence of Good Reason. (vi) "Base Salary" shall mean the amount determined by multiplying the Executive's highest bi-weekly or other periodic rate of base pay paid to the Executive during the twelve-month period immediately prior to the giving of the Notice of Termination by the number of pay periods per year. The following items are not part of base pay, as used herein: reimbursed expenses, any amount paid on account of overtime or holiday work, payment on account of insurance premiums or other contributions made to other welfare or benefit plans, any year-end or other bonuses, commissions and gifts. For purposes of this subparagraph (d), no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. (e) Any purported termination of employment by the Company or a Subsidiary by reason of the Executive's Disability or for Cause, or by the Executive for Good Reason shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by the Executive or the Company or a Subsidiary, as the case may be, which shall indicate the specific basis for termination and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. An Executive shall not be entitled to give a Notice of Termination that the Executive is terminating his employment with the Company or a Subsidiary for Good Reason more than six (6) months following the occurrence of the event alleged to constitute Good Reason. (f) For purposes of this Agreement, "Date of Termination" shall mean the date specified in the Notice of Termination, which shall be not more than ninety (90) days after such Notice of Termination is given. If within thirty (30) days after any Notice of Termination is given, the party who receives such Notice of Termination notifies the other party that a Dispute (as heretofore defined) exists, the Date of Termination shall be the date on which the Dispute is finally determined, either by -6- 8 mutual written agreement of the parties, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company or a Subsidiary shall continue to pay the Executive the same Base salary and to provide the Executive with the same or substantially comparable welfare benefits and perquisites, including participation in the Company's or a Subsidiary's retirement plans, Savings Incentive Plan, Incentive Bonus Plan, Long-Term Performance Stock Plan, Executive Severance Plan, and stock option plans that the Executive was paid and provided immediately prior to the Change in Control of the Company. Should it ultimately be determined that a challenged termination by the Company or a Subsidiary by reason of the Executive's Disability or for Cause was justified, or that a challenged termination by the Executive for Good Reason was not justified, then all sums paid by the Company or a Subsidiary to the Executive from the date of termination specified in the Notice of Termination until final resolution of the Dispute pursuant to this paragraph shall be repaid promptly by the Executive to the Company or a Subsidiary, with interest at the base rate charged from time to time by United Jersey Bank, Hackensack, all options, rights and restricted stock granted to the Executive during such period shall be cancelled or returned to the Company or Subsidiary, and no service as an employee shall be credited to the Executive for such period for pension purposes. The Executive shall not be obligated to pay to the Company or a Subsidiary the cost of providing the Executive with welfare benefits and perquisites for such period unless the final judgment, order or decree of a court resolving the Dispute determines that the Executive acted in bad faith in giving a notice of Dispute. Should it ultimately be determined that a challenged termination by the Company or a Subsidiary by reason of the Executive's Disability or for Cause was not justified, or that a challenged termination by the Executive for Good Reason was justified, then the Executive shall be entitled to retain all sums paid to the Executive pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in paragraph 4 hereof. 4. PAYMENTS UPON TERMINATION. If within three years after a Change in Control of the Company, the Company or a Subsidiary shall terminate the Executive's employment other than by reason of the Executive's death, Disability, Retirement or for Cause or if the Executive shall terminate his employment for Good Reason then, (a) the Company or a Subsidiary will pay to the Executive as compensation for services rendered, on or before the Executive's Date of Termination, a lump sum cash amount (subject to any applicable payroll or other taxes required to be withheld computed at the rate for supplemental payments) equal to the Executive's Base Salary, but in no event greater than 2.99 times the average of the Executive's annual compensation payable -7- 9 by the Company and its Subsidiaries and includible in the Executive's gross income for Federal income tax purposes for the five calendar years immediately preceding the Change in Control (or such portion of such period during which the Executive was an employee of the Company or a Subsidiary); (b) the Executive will be entitled to receive "Special Retirement Benefits" as provided herein, so that the total retirement benefits the Executive receives from the Company will approximate the total retirement benefits the Executive would have received under all retirement plans (which shall not include severance plans) and other employment contracts of the Company and its Subsidiaries in which the Executive participates were the Executive fully vested under such retirement plans and entitled to all benefits payable under such other employment contracts and had the Executive continued in the employ of the Company or a Subsidiary for thirty-six months following Date of Termination or until his Retirement, if earlier (provided that such additional period shall be inclusive of and shall not be in addition to any period of service credited under any severance plan of the Company or a Subsidiary). The benefits specified in this subparagraph will include all ancillary benefits, such as early retirement and survivor rights and benefits available at retirement. The amount payable to the Executive or his beneficiaries under this subparagraph shall equal the excess of (1) the benefits that would be paid to the Executive or his beneficiaries, under all retirement plans and other employment contracts of the Company and its Subsidiaries in which the Executive participates if (A) the Executive were fully vested under such plans and entitled to all benefits payable under such other employment contracts, (B) the thirty-six (36) month period (or the period until his Retirement, if less) following the Date of Termination were added to his credited service under such plans and contracts, (C) such plans were hereafter not amended in a way that adversely affects the Executive, and (D) the Executive's highest average annual base salary as defined under such retirement plans and other employment contracts were calculated as if the Executive had been employed by the Company or a Subsidiary for a thirty-six (36) month period (or the period until his Retirement, if earlier) following the Date of Termination and had the Executive's salary during such period been equal to the Executive's Base Salary; over (2) the benefits that are payable to the Executive or his beneficiaries under all retirement plans and other employment contracts of the Company and its Subsidiaries in which the Executive participates. These Special Retirement Benefits are provided on an unfunded basis, are not intended to meet the qualification requirements of Section 401 of the Internal Revenue Code and shall be payable solely from the general assets of the Company. These Special Retirement Benefits shall be payable at the times and in the manner provided in the applicable retirement plans and other employment contracts to which they relate. -8- 10 5. GENERAL. (a) The Executive shall retain in confidence any proprietary or other confidential information known to him concerning the Company and its business (including the Company's Subsidiaries and their businesses) so long as such information is not publicly disclosed and disclosure is not required by an order of any governmental body or court. (b) If litigation shall be brought to enforce or interpret any provision contained herein, the Company shall indemnify the Executive for his reasonable attorney's fees and disbursements incurred in such litigation and pay prejudgment interest on any money judgment obtained by the Executive calculated at the United Jersey Bank, Hackensack, base rate of interest in effect from time to time from the date that payment should have been made under the Agreement; provided that the Executive shall not have been found by the court to have acted in bad faith, which finding must be final with the time to appeal therefrom having expired and no appeal having been taken. (c) The Company's obligation to pay the Executive the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the company may have against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in paragraph 3(f) herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from the Executive or any person entitled thereto. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. (d) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by written agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph 5 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (e) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be -9- 11 payable to the Executive hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there be no such designee, to the Executive's estate. The obligations of the Executive hereunder shall not be assignable by the Executive. 6. NOTICE. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Mr. Clifford H. Coyman 280 Prospect Avenue, Apt. 4F Hackensack, New Jersey 07601 If to the Company: United Jersey Banks 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 Attention: Secretary to the Board or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No assurances or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. However, this Agreement is in addition to and not in lieu of any other plan providing for payments to or benefits for the Executive or any agreement now existing or which hereafter may be entered into between the Company and the Executive. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New Jersey. -10- 12 8. FINANCING All amounts due and benefits provided under this Agreement shall constitute general obligations of the Company in accordance with the terms of this Agreement. The Executive shall have only an unsecured right to payment thereof out of the general assets of the Company. Notwithstanding the foregoing, the Company may, by agreement with one or more trustees to be selected by the Company, create a trust on such terms as the Company shall determine to make payments to the Executive in accordance with the terms of this Agreement. 9. VALIDITY. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. UNITED JERSEY BANKS EXECUTIVE By: ______________________________ ____________________________ T. Joseph Semrod, Chairman of the Board and President -11- EX-10.EEII 5 AMENDMENT NO. 1 TO FORM OF TERMINATION AGREEMENT 1 EXHIBIT (10)EE.(ii) 2 Exhibit (10)EE.(ii) AMENDMENT NO. 1 TO TERMINATION AGREEMENT THIS AMENDMENT NO. 1 dated and entered into effective as of the 20th day of December, 1989, to the TERMINATION AGREEMENT (the "Agreement") by and between United Jersey Banks (now UJB Financial Corp.), a New Jersey corporation (the "Company") and ____________________________________ (the "Executive). W I T N E S S E T H: WHEREAS, the Company and the Executive have previously entered into the Agreement referred to above; and WHEREAS, the Company and the Executive desire to amend the Agreement to permit the Executive to receive the maximum after-tax payments and benefits thereunder; NOW, THEREFORE, to assure the Company of the Executive's continued dedication and the availability of his advice and counsel in the event of a proposed change of control of the Company, to induce the Executive to remain in the employ of the Company or a Subsidiary of the Company, and to reward the Executive for his valuable, dedicated service to the Company or a Subsidiary should his service be terminated under circumstances described in the Agreement, and for other good and valuable consideration, the receipt and adequacy whereof each party acknowledges, the Company and the Executive agree that the Agreement is hereby amended by adding a new paragraph 5(f) thereto as follows: 5(f) The amounts due pursuant to this Agreement shall be reduced by the Excess Amount (as defined below) if (i) any payment or benefit received or to be received by the Executive in connection with a Change of Control of the Company or the termination of employment of the Executive, whether pursuant to the terms of this Agreement or any other plan, agreement or arrangement (collectively, the "Payments"), would be subject in whole or in part to the excise tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the amount by which the Payments paid or to be paid to or for the benefit of the Executive exceeds the maximum amount of Payments which may be paid to or for the benefit of the Executive without any portion of such Payments being subject to the Excise Tax (the "Excess Amount") is less than or equal to the sum of (A) the total amount of the Excise Tax which would be imposed on the Payments and (B) the income taxes that would be payable by the Executive in respect of the Excess Amount. All determinations necessary to the application of this paragraph 5(f) shall be made by the Executive, in his sole discretion, who shall deliver to the Company a statement setting forth in reasonable detail the application of this paragraph 5(f) to the Payments due under this Agreement. IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Agreement as of the date set forth above. UJB FINANCIAL CORP. EXECUTIVE EX-10.EEIII 6 AMENDMENT NO. 2 TO FORM OF TERMINATION AGREEMENT 1 EXHIBIT (10)EE.(iii) 2 Exhibit (10)EE.(iii) AMENDMENT NO. 2 TO TERMINATION AGREEMENT THIS AMENDMENT NO. 2 dated and entered into effective as of the 16th day of October, 1991, to the TERMINATION AGREEMENT (the "Agreement") by and between United Jersey Banks (now UJB Financial Corp.), a New Jersey corporation (the "Company") and (the "Executive"), as amended by Amendment No. 1 dated December 20, 1989. WITNESSETH: WHEREAS, the Company and the Executive have previously entered into the Agreement referred to above; and WHEREAS, the Company and the Executive desire to amend the Agreement to extend the term of the Agreement and to permit the Company to collect from the Executive any amounts that may become payable to the Internal Revenue Service due to an excess parachute payment; NOW, THEREFORE, to assure the Company of the Executive's continued dedication and the availability of his advice and counsel in the event of any proposed change of control of the Company, to induce the Executive to remain in the employ of the Company or a Subsidiary of the Company, and to reward the Executive for his valuable, dedicated service to the Company or a Subsidiary should his service be terminated under circumstances described in the Agreement, and for other good and valuable consideration, the receipt and adequacy whereof each party acknowledges, the Company and the Executive agree that the Agreement is hereby amended as follows: 1. Paragraph 1.(b) of the Agreement is amended in its entirety to read as follows: 1.(b) The Company shall be obligated to make the payments referred to in paragraphs 3 and 4 hereof following, and the provisions of paragraph 2 hereof shall apply to, a Change in Control of the Company only if such Change in Control shall have occurred prior to, or as a result of efforts designed to attain such and known to the parties hereto to have commenced prior to, December 29, 1996 (or such later date as the Board shall determine). 2. A new paragraph 5.(g) is added thereto and shall read in its entirety as follows: 5.(g) The Company shall contest any improper assessment of the Excise Tax or other tax imposed as a result of a determination that an "excess parachute payment" has been made to the Executive within the meaning of Section 280G of the Code. If it is established pursuant to a final determination of a court of competent jurisdiction or an Internal Revenue Service proceeding that an "excess parachute payment" within the meaning of Section 280G of the Code does in fact exist, and that the Company is liable for failure to withhold the Excise Tax, then the Executive shall pay to the Company, upon demand, an amount not to 3 exceed the sum of the amount of tax, interest and penalties and additions to tax (if any) for which the Company is determined to be liable by reason of its failure to withhold. The Company shall provide notice to the Executive of any proceeding concerning the potential determination that a payment to the Executive constituted an excess parachute payment. IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 to the Agreement as of the date set forth above. UJB FINANCIAL CORP. EXECUTIVE :TERM2 EX-10.JJ 7 RETIREMENT PLAN FOR OUTSIDE DIRECTORS 1 EXHIBIT (10)JJ. 2 COMMERCIAL BANCSHARES, INC. DIRECTORS RETIREMENT PLAN This Plan adopted as of this 1st day of May, 1986, is intended to be a nonqualified defined benefit plan. The purpose of this Plan is to attract and retain highly qualified outside Directors of Commercial Bancshares, Inc. (the "Company") by making provision for the payment of retirement benefits to all of the outside Directors of the Company who have contributed in a substantial degree to the success of the Company. This Plan shall not be a funded plan, and the Company shall not set aside any funds for the purpose of making payments under this Plan. Any payments hereunder shall be made out of the general assets of the Company. This Plan is not intended to meet the qualification requirements of Section 401 of the Internal Revenue Code of 1954, as amended. No Participant shall be entitled to receive any payments for benefits under this Plan from the trust funds maintained pursuant to any trust agreements under any other pension, profit sharing or other plan maintained by the Company. ARTICLE I DEFINITIONS Whenever the following words and phrases appear in this Plan, they have the respective meaning set forth below, unless the context clearly indicates otherwise: 3 1.01. "Board of Directors" means the Board of Directors of the Company. 1.02. "Change of Control of the Company" means a consolidation, dissolution, or complete liquidation of the Company, or a sale of all or substantially all of its assets, or other corporate reorganization in which the Company is not the surviving corporation, or any merger in which the Company is the surviving corporation, but in which the holders of its Common Stock receive securities of another corporation. 1.03. "Committee" means the committee of directors of the Company appointed to administer the Plan as provided in Article IV. 1.04. "Compensation" means the total annual fees payable by the Company to the Participant, whether or not such fees are deferred at the election of the Participant, including Director's fees and fees for serving on a committee, that are or would be included in the Federal gross income of the Participant, but for the deferral of receipt by the Participant. 1.05. "Effective Date" means the date on which this Plan is adopted. 1.06. "Outside Director" means a person serving on the Board of Directors who is not an employee of the Company or of any Subsidiary. -2- 4 1.07. "Participant" means an Outside Director who participates in this Plan. 1.08. "Plan" means this Commercial Bancshares, Inc. Directors Retirement Plan, as described herein, or as hereafter amended. 1.09. "Retirement" means the later of the attainment of age sixty-five (65) or the cessation of a Participant's services as an Outside Director, by reason other than death, whereby the Participant thereafter is not a director of the Company. 1.10. "Subsidiary" means a corporation more than 80 percent of whose outstanding securities representing the right, other than as affected by events of default, to vote for the election of directors, is as of the date of adoption, and during the effectiveness, of the Plan, owned directly or indirectly, by the Company. 1.11. "Year of Service" means a period of 12 months (including nonconsecutive months) commencing as of the earlier of the date that an individual becomes an Outside Director or becomes a director of a Subsidiary of the Company or a predecessor of such Subsidiary, including: (i) Years of Service prior to the Effective Date of this Plan; (ii) Years of Service rendered to a Subsidiary of the Company or a predecessor of such Subsidiary including such service prior to the -3- 5 Subsidiary or such predecessor becoming a Subsidiary of the Company; and (iii) Years of Service rendered to the surviving corporation following a Change of Control of the Company. 1.12. The masculine pronoun means the feminine, wherever appropriate. ARTICLE II ELIGIBILITY 2.01. All Outside Directors of the Company are eligible to be and shall become Participants of the Plan as of the later of the Effective Date of this Plan or the date of election or appointment to the Board of Directors as an Outside Director. ARTICLE III AMOUNT AND PAYMENT OF RETIREMENT BENEFITS 3.01. Except as otherwise provided in this Article III, (a) The annual retirement benefit payable under this Plan to a Participant shall be equal to 50 percent of the Participant's average Compensation during the three calendar years in which such Participant's Compensation is highest. (b) Notwithstanding paragraph (a), the minimum annual retirement benefit payable shall not be less than $4,000. -4- 6 3.02. The amount of the annual retirement benefit payable under Paragraph 3.01 herein shall be reduced by 1/10th for each Year of Service or part thereof less than ten. 3.03. Subject to Paragraph 3.04, a Participant shall be 50 percent vested in his aggregate accrued retirement benefits payable under the Plan after completing five (5) Years of Service, and the Participant shall vest an additional ten (10) percent in his aggregate accrued retirement benefits for each subsequent Year of Service. 3.04. In the event of a Change of Control of the Company, following which event the Participant does not continue to serve as an Outside Director, each Participant who has completed three (3) Years of Service shall immediately become 100 percent vested in his aggregate accrued retirement benefits as calculated under Paragraph 3.01, but without regard to the application of Paragraph 3.02, and shall be eligible for payment of such retirement benefits commencing upon the Participant's attaining age 65 (or immediately if the Participant is then older than 65 years of age) in accordance with the payment provisions of this Article III. 3.05. Retirement benefits shall be paid to a Participant, in cash or the equivalent thereof, beginning on the first day of the calendar quarter following the end of the calendar quarter of the Participant's Retirement, in equal quarterly installments without interest for a period of ten -5- 7 (10) years; provided, however, that upon a Participant's death, a Participant shall forfeit all of his right, title and interest in and to his retirement benefits payable under this Plan. ARTICLE IV ADMINISTRATION 4.01. The Plan shall be administered by a Committee, appointed from time to time by the Board of Directors of the Company, consisting of not less than three directors of the Company and appointed from among directors who are not Participants of the Plan. The Committee shall have full power and authority, subject to the terms and conditions of the Plan, from time to time, to calculate the amount of retirement benefits to be paid under the Plan in accordance with Article III, to construe and adopt rules and regulations relating to the Plan and to determine all other matters which may arise in the administration of the Plan. The determination of the Committee concerning any matter arising under or with respect to the Plan or any retirement benefits payable under the Plan shall be final, binding and conclusive on all interested persons. The Committee may, as to all questions of accounting, rely conclusively upon any determinations made by the independent public accountants of the Company. -6- 8 ARTICLE V AMENDMENT AND TERMINATION 5.01. The Board of Directors shall have the right at any time to amend this Plan in any respect, or to terminate this Plan. However, if this Plan is amended or discontinued, such action shall not impair or adversely affect any benefits accrued under this Plan as of the date of such action. ARTICLE VI GENERAL PROVISIONS 6.01. The establishment of this Plan shall not be construed as conferring any legal rights upon any Outside Director or other person for a continuation of appointment to the Board of Directors, nor shall it interfere with the right of the Company to terminate any Outside Director or to act with respect to him without regard to the effect which such treatment might have upon him as a Participant. 6.02. Subject to any applicable law, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, nor shall any such benefit be in any manner liable for or subject to garnishment, attachment, execution or levy, or liable for or subject to the debts, contracts, liabilities, engagement or torts of the Participant. -7- 9 6.03. The Plan shall be construed, regulated and administered under the laws of the State of New Jersey. -8- EX-10.KKI 8 DIRECTORS DEFERRED COMPENSATION PLAN 1 EXHIBIT (10)KK.(i) 2 Exhibit (10)KK.(i) COMMERCIAL BANCSHARES, INC. DIRECTORS DEFERRED COMPENSATION PLAN I. PURPOSE This Plan adopted this 20th day of May, 1986, is intended to provide a means for selected directors of the Corporation to defer the receipt of Compensation to future years. II. DEFINITIONS Whenever the following words and phrases appear in the Plan, they have the respective meaning set forth below, unless the context clearly indicates otherwise: A. "Board of Directors" means the Board of Directors of the Corporation. B. "Committee" means a group of not less than three senior officers or directors of the Corporation appointed to administer the Plan in accordance with the provisions in Section IV. C. "Commingled Accounts" means the accounts (including a Participant's Deferred Compensation Account), the assets of which are commingled pursuant to Paragraph D of Section V. D. "Compensation" means: (i) any annual retainer or meeting fees payable by the Corporation for services as an Out- 3 side Director or a Director, (ii) any other fees payable by the Corporation for services as an Outside Director or a Director, including services on a committee of the Board of Directors, (iii) any property including, without limitation, stock and other securities of the Corporation payable by the Corporation for services as an Outside Director or a Director, and (iv) any other component of a Participant's compensation paid by the Corporation to an Outside Director or a Director, the payment of which the Committee has approved to be deferred (including, in the case of Directors who shall have been designated as "Eligible Participants" under Section III, salary and cash bonuses). E. "Corporation" means Commercial Bancshares, Inc. F. "Deferred Compensation" means Compensation, the payment of which has been deferred by a Participant as herein provided. G. "Deferred Compensation Account" means an individual account maintained on the books and records of the Master Trust for each Participant of all Deferred Compensation held by the Master Trust and all proceeds earned and gains and losses realized with respect thereto and all payments made therefrom, in accordance with Paragraphs B, C and D of Section V. H. "Deferral Period" means the period designated by a Participant, beginning on the date when payment of Deferred -2- 4 Compensation is first deferred and ending when the last payment of Deferred Compensation is made. I. "Director" means a director of the Corporation who is not an Outside Director. J. "Effective Date" means the date on which the Plan is adopted as first hereinabove written. K. "Master Trust" means a trust established by the Corporation in accordance with Paragraph A of Section V. L. "Outside Director" means a director of the Corporation who is not an officer or other employee of the Corporation or of a Subsidiary. M. "Participant" means an Outside Director or a Director who participates in this Plan, as herein provided, for so long as such person shall so participate. N. "Plan" means this Commercial Bancshares, Inc. Directors Deferred Compensation Plan, as described herein, or as hereafter amended. O. "Related Plan" means a deferred compensation plan adopted by a Subsidiary which in operation and effect permits directors of such Subsidiary to defer compensation on substantially the same terms and conditions as Compensation may be deferred under the Plan; provided that if the classes of directors of a Subsidiary who may defer compensation are dif- -3- 5 ferent than the classes of Outside Directors and Directors who may defer Compensation under the Plan, that difference alone shall not preclude the deferred compensation plan of such Subsidiary from being a Related Plan. P. "Retirement" means the later of the attainment of age sixty-five (65) or the cessation of a Participant's services as an Outside Director or as a Director, as the case may be, whereby the Participant thereafter is not a director of the Corporation or of a Subsidiary. Q. "Subsidiary" means a corporation more than 80 percent of whose outstanding securities representing the right, other than as affected by events of default, to vote for the election of directors, is as of the date of adoption of, and during the effectiveness of the Plan, owned directly or indirectly, by the Corporation. R. "Termination" means the cessation of a Participant's services as a director of the Corporation or of a Subsidiary for any reason other than death or Retirement. S. The masculine pronoun means the feminine whenever appropriate. III. ELIGIBILITY All Outside Directors, and such other Directors or classes of Directors as shall have been designated as "Eligible -4- 6 Participants" by action of the Board of Directors, are eligible to be Participants as of the latest to occur of the Effective Date, the date of election or appointment as an Outside Director or Director, or the date of such designation. IV. ADMINISTRATION A. The Committee. The Plan shall be administered by a Committee, appointed from time to time by the Board of Directors, consisting of one or more individuals who are not Participants and who are selected and appointed from among the Board of Directors and the senior officers of the Corporation. B. Reports. Subject to the provisions of the Plan, the Committee shall, at least annually, report or cause to be reported in writing to the Board of Directors (i) the identity and number of Participants in the Plan and (ii) the form, type and amount of Compensation subject to deferral under the Plan. The Committee shall also report or cause to be reported in writing to each Participant from time to time, but not less frequently than annually, the status of the Participant's Deferred Compensation Account as of a stated date. Such report may be (but need not be) a composite report reflecting the status of a Participant's Deferred Compensation Account and of a Participant's accounts under Related Plans. C. Powers and Duties of the Committee. The Committee shall have the power and duty to specify the period of time -5- 7 in which a Participant may make an irrevocable election to defer receipt of all or any part of his payment of Compensation; to interpret the Plan; to make other determinations that the Committee believes necessary or advisable for the administration of the Plan; and to adopt rules, regulations and forms of agreements and other documents executed pursuant to the Plan which are not inconsistent with the Plan and with the determinations of the Board of Directors. The determination of the Committee concerning any matter arising under or with respect to the Plan or any benefits payable under the Plan shall be final, binding and conclusive on all interested persons. V. ESTABLISHMENT OF MASTER TRUST AND DEFERRED COMPENSATION A. Master Trust. The Corporation shall, prior to or promptly after the end of the calendar quarter in which Deferred Compensation is first deferred, establish a trust substantially in the form of Annex 1 hereto to be known as the "Master Trust," and shall from time to time, but not less frequently than quarterly, contribute all of the Deferred Compensation to the Master Trust, to be invested, reinvested and distributed to the Participants by the Trustees of the Master Trust in accordance with the provisions of the Plan and of the Master Trust. B. Deferred Compensation Account. The Trustees of the Master Trust shall establish the Deferred Compensation Account -6- 8 as a book reserve for each Participant, and from time to time shall enter therein the name of the Participant and the amount of money and property to be credited to the Participant's Deferred Compensation Account as herein provided. A separate sub-account (a "Sub-account") may be maintained within such Deferred Compensation Account for each election by a Participant to defer Compensation, except that a single Sub-account within such Deferred Compensation Account shall be maintained for all deferrals by a Participant having identical payout periods. All Compensation deferred under the Plan shall be contributed to the Master Trust and credited to a Participant's Deferred Compensation Account in the Master Trust as provided in this Section V and in the Master Trust Agreement establishing the Master Trust. C. Credits or Debits to a Deferred Compensation Account. A Participant's Deferred Compensation Account and the Sub-accounts, if any, contained therein shall consist of an amount of money and property credited or debited thereto by reason of the Participant's election to defer Compensation, as follows: (i) Principal. If a Participant elects to defer Compensation, the Participant's Deferred Compensation Account shall be credited with the amount of such Compensation as of the date on which it would have been paid but for said deferral. (ii) Income. The Participant's Deferred Compensation Account shall be credited from time to time with an amount equal to interest or other -7- 9 proceeds earned or gains realized by the investment or reinvestment of the assets allocable to said account as determined by the Trustees, or at the Trustees' sole discretion, by the independent public accountants of the Corporation. (iii) Loss. The Participant's Deferred Compensation Account shall be debited from time to time with an amount equal to any losses realized by the investment or reinvestment of the assets allocable to said account as determined by the Trustees, or at the Trustees' sole discretion, by the independent public accountants of the Corporation. (iv) Payments. The Participant's Deferred Compensation Account shall be debited with an amount equal to all payments of Deferred Compensation. D. Commingling of Assets in Participant's Accounts. If a Participant is a Participant under one or more Related Plans, then, subject to rules established by the Committee, he may direct that all or some of the assets in his Deferred Compensation Account may be commingled, invested and reinvested with all or some of the assets in an account for such Participant under such Related Plan or Related Plans; provided, that no such commingling, investment or reinvestment may occur with respect to any assets in a Participant's Deferred Compensation Account unless the payout period relating to the assets in each Commingled Account is identical. Notwithstanding any commingling of assets as herein permitted, separate accounts shall be maintained for each Commingled Account. Any income or loss realized with respect to assets in -8- 10 Commingled Accounts shall be allocated between the Commingled Accounts pro rata on such basis as the Committee and the committee administering each such Related Plan shall mutually determine. VI. DEFERRAL OF COMPENSATION A. Election to Defer; Deferral Period. Each Outside Director or Director, who is eligible to be a Participant as provided in Section III and who receives Compensation may, within the period specified by the Committee, participate in the Plan by making an irrevocable election, as provided in Paragraphs B and C, to defer receipt of all or any part of payment of such Compensation; provided, however, that each such election must defer the receipt of an amount of not less than $100. A Participant may elect to receive amounts in a particular Sub-account in his Deferred Compensation Account over a number of years, not to exceed ten (10), as selected by the Participant or as otherwise permitted by the Committee. B. Notice of Election to Defer. Each Participant shall, within the period specified in Paragraph C hereunder, notify the Committee in writing of an election to defer the receipt of Compensation. Each such notice shall state: (i) the amount or percentage of the Compensation to be deferred (the "Deferred Compensation"); (ii) the year in which payment is to commence; and (iii) the number of years for payment. -9- 11 C. Time of Notice of Election to Defer. Written notice of election to defer Compensation must be given to the Committee by a Participant within the following time periods: Type of Compensation Notice Required Director's Fees For any part of fees to be earned in the fiscal year ending December 31, 1986, on or before the end of the month preceding the month in which earned. With respect to fees for all subsequent years, on or before the December 31st preceding the year in which earned. Other As specified by the Committee, but prior to commencement of the period during which services are performed for which such Compensation is actually earned. D. Notice of Directed Investment. Each Participant may from time to time, but not more frequently than quarterly, specify by giving written notice to the Trustees of the Master Trust: (i) the form and type of investment or reinvestment, (ii) the amount or percentage of Deferred Compensation credited to such Participant's Deferred Compensation Account to be so invested or reinvested, and (iii) the date, not less than five (5) days from the date of such notice, as of which such specifications in (i) and (ii) above are to be effected; provided, that (x) no such investment or reinvestment shall be other than in cash, cash equivalents or readily marketable securities and no such investment or reinvestment shall be contrary to rules established by the Committee, (y) no investment or reinvestment may be specified by a Participant in which such Participant may -10- 12 have liability greater than the amount of such investment or reinvestment, or which might or will place other assets of the Master Trust not credited to such Participant's Deferred Compensation Account at risk, and (z) unless otherwise permitted pursuant to rules and regulations adopted by the Committee and then only pursuant to such rules, no investment or reinvestment may be made in securities issued or guaranteed by the Corporation or a Subsidiary. If the Participant has not specified the form or type of investment or reinvestment of cash balances held at any time in his Deferred Compensation Account, such cash balances may be (but need not be) invested or reinvested in investments permitted under the Plan according to the sole discretion of the Trustees of the Master Trust. In the event of the making of any investment or reinvestment by the Trustees as provided in the immediately preceding sentence, other than an investment or reinvestment of cash balances in time, interest bearing demand or money market accounts or pursuant to a dividend reinvestment plan, the Trustees of the Master Trust shall mail or cause to be mailed to a Participant, at his last address known to the Trustees, written notice of each investment or reinvestment within a reasonable period of time thereafter. VII. PAYMENT OF DEFERRED COMPENSATION A. Amount and Timing of Payment. Except as otherwise provided in the Plan, the first payment of Deferred Compen- -11- 13 sation will be made in the year specified by the Participant or, if any of the following events occur prior to the year specified by the Participant, in the year following the year in which occurs the earliest of the following: (i) death of the Participant; (ii) Retirement of the Participant. Unless the Participant has selected a different payment schedule or formula which has been approved by the Committee with respect to each deferral, the amount to be paid to a Participant in any year during the payout period shall be paid in cash or cash equivalents, or in property held for the Participant's account and valued at its value as reflected on the Participant's Deferred Compensation Account, at the discretion of the Committee. The amount to be paid each year to a Participant during the Participant's payout period with respect to a particular Sub-account shall be distributed in as nearly equal payments as practicable as determined in the sole discretion of the Committee; provided that in the last year of the payout period the entire amount credited to such Sub-account shall be paid to such Participant. Any payments of Deferred Compensation will be made by the Trustees of the Master Trust on or, at the discretion of the Committee, prior to March 31st of the calendar year in which such payment will be made. In the case of payments from Commingled Accounts, payments shall be allocated between such Commingled Accounts pro rata on such basis as the -12- 14 Committee and the committee administering each affected Related Plan shall mutually determine. B. Distribution on Termination of Service. Notwithstanding the foregoing, in the event of a Participant's Termination immediately after which such Participant is no longer a director of the Corporation or of any Subsidiary, and subject to the provisions of Paragraph G(i) of Section VIII, the Trustees of the Master Trust shall pay out the entire balance credited to such Participant's Deferred Compensation Account as soon as practicable after such Termination, unless the Committee in its sole discretion provides for a different payment schedule not longer than the schedule originally selected by the Participant. VIII. GENERAL PROVISIONS A. Assignment. The interest of a Participant or of the Participant's beneficiary(ies) in any Deferred Compensation Account held in the Master Trust is not assignable, either by voluntary or involuntary assignment or by operation of law. No part of any Deferred Compensation Account may be paid over, loaned, sold, assigned, transferred, discounted, pledged as collateral for a loan, or in any other way encumbered or alienated before the end of the Deferral Period with respect to such Deferred Compensation. -13- 15 B. Contribution of Deferred Compensation. During the Deferral Period, the Corporation shall segregate all Deferred Compensation from other funds of the Corporation by contributing all Deferred Compensation to the Master Trust. An election to defer Compensation by a Participant hereunder shall constitute an acknowledgment and agreement by the Participant that during a Deferral Period and, in the event of insolvency or bankruptcy of the Corporation, thereafter to the extent required by law, all Deferred Compensation contributed to the Master Trust by the Corporation and (if any) all net proceeds earned and net appreciation accrued with respect thereto is subject to the claims of the general creditors (including a Participant in his capacity as such) of the Corporation. Nothing contained in the Plan shall be construed as creating any absolute or unconditional trust, express or implied, for the benefit of any Participant. C. Appointment of Beneficiary. Subject to applicable law, each Participant may appoint a beneficiary or beneficiaries to receive payments to be made from such Participant's Deferred Compensation Account, if any, after the Participant's death. In the absence of such appointment, all such amounts shall be paid to the Participant's estate. The appointment shall be made on a form to be supplied by the Committee and may -14- 16 be revoked or superseded at any time. Payments to a beneficiary or beneficiaries shall be made in accordance with the schedule designated by the Participant. D. Reservation of Rights. Nothing in this Plan shall be construed to give any Outside Director or Director any right (i) to defer Compensation other than as expressly authorized and permitted by this Plan and the Committee, (ii) to limit in any way the right of the Corporation or a Subsidiary to terminate a Participant's services as an Outside Director or a Director or a member of the board of directors of a Subsidiary, or (iii) to be nominated for election or reelection as a director of the Corporation or a Subsidiary. E. Amendment or Termination. The Corporation may, at any time, terminate or amend this Plan provided that any such termination or amendment shall not affect the rights of a Participant or beneficiary(ies) of the Participant to payments of amounts standing to the credit of the Participant in the Participant's Deferred Compensation Account at the time of such amendment or termination. In the event of termination of this Plan, the Corporation, in its absolute discretion, may make such provision for payment of Deferred Compensation as it deems appropriate including, among other things, the payment of Deferred Compensation notwithstanding an election by a Participant with respect thereto. -15- 17 F. Relationship to Other Benefit Plans of the Corporation. Deferred Compensation shall not be included as compensation to the Participant either at the time earned or paid for the purpose of computing benefits to which the Participant may be entitled under any retirement plan of the Corporation or of any Subsidiary or under any other benefit arrangement of the Corporation or any Subsidiary for the benefit of their respective directors, except as otherwise provided in any such plan. G. Change in Directorship or Law. The Committee may, in its absolute discretion, make appropriate adjustments with respect to the terms of the Plan and its applicability to Participants in the event (i) of a discontinuance by the Corporation of a Participant's services as an Outside Director or Director resulting from an event such as merger, sale of assets, consolidation, other business combination or liquidation of the Corporation, or (ii) any of the anticipated benefits of deferral pursuant to this Plan or any provision hereof are altered by reason of any interpretation of or change in law, policy or regulation. H. Voting of Securities. No Participant will be entitled to direct the Trustees of the Master Trust as to the exercise of any voting rights attributable to securities having voting rights held in a Participant's Deferred Compensation Account. -16- 18 Such securities shall not be voted by such Participant or by the Trustees of the Master Trust. I. Applicable Laws. The Plan shall be construed, regulated and administered under the laws of the State of New Jersey. -17- EX-10.KKII 9 RELATED MASTER TRUST AGREEMENT 1 EXHIBIT (10)KK.(ii) 2 Exhibit (10)KK.(ii) MASTER TRUST AGREEMENT THIS TRUST AGREEMENT made as of this _______ day of __________, 1986, by and among Commercial Bancshares, Inc., a corporation organized and existing under the banking laws of New Jersey, and each of those current and hereafter acquired or created subsidiaries of Commercial Bancshares, Inc. who have or will have executed this Master Trust Agreement or a counterpart or supplement hereto, hereinafter singularly referred to as the "Grantor" and collectively referred to as the "Grantors", and Stephen P. Cosgrove, Benjamin Pace and Edward Lord, as TRUSTEES, hereinafter referred to as the "Trustees", WITNESSETH: WHEREAS, the Board of Directors of each of the Grantors, prior to or at the time of executing this Master Trust Agreement or a counterpart or supplement hereto, has adopted a resolution substantially in the following form: RESOLVED, that there be and hereby is created and established a fund to be known as the MASTER TRUST to which has been appropriated out of the earnings of this Corporation, the sum of all Deferred Compensation, as that term is defined under the Directors Deferred Compensation Plan of this Corporation (the "Plan"), that would have been payable but for the Plan participant's election to defer receipt, which amount of Deferred Compensation has been paid to the Trustees; and be it further RESOLVED, that there be and hereby is appointed Stephen P. Cosgrove, Benjamin Pace and Edward Lord to serve as Trustees and administer the fund. 3 WHEREAS, pursuant to the said resolution said sum was paid to the Trustees, and WHEREAS, it is now the desire of the Grantors and the Trustees that the intention of the parties and the creation and establishment of such fund and terms and conditions under which such fund is to be administered by the Trustees be definitively set out in writing, NOW THEREFORE, the Grantors, in consideration of the premises and covenants and agreements herein contained, and other good and valuable consideration, subject to the terms and conditions hereof, do hereby give, grant, convey and transfer irrevocably to the Trustees herein and before named, and to their successors in office, the cash set forth in Schedule "A", hereto attached and made a part hereof, TO HAVE AND TO HOLD all and singular the above described property unto the Trustees, and any additional property which may be transferred to the Trustees, IN TRUST NEVERTHELESS, for the uses and purposes and subject to the duties and powers hereinafter set forth: SECTION I RELATION TO THE PLAN All of the provisions of the Directors Deferred Compensation Plans of each of the respective Grantors (the "Plans") are hereby incorporated by reference to the extent -2- 4 that they do not conflict with this Trust. All capitalized words and phrases appearing in this Trust shall have the same respective meaning as set forth in the Commercial Bancshares, Inc. Directors Deferred Compensation Plan, as it may from time to time be amended, unless the context clearly indicates otherwise. SECTION II INVESTMENT AND APPLICATION OF TRUST FUND AND INCOME The Trustees shall receive, hold and manage the property and the income and proceeds earned and appreciation or losses accrued with respect thereto at any time forming a part of the Trust (the "Trust Fund"). The Trustees shall establish the Deferred Compensation Account required under each of the Plans as a book reserve for each of the participants of the respective Plans, and shall adjust each such Deferred Compensation Account to reflect all of the compensation deferred by a participant of the respective Plans together with all of the income and proceeds earned, gains or losses realized and payments made with respect thereto (the "Account Balance"). The Trustees shall invest and reinvest the Account Balance according to the written specifications of such participant given in accordance with the provisions of the applicable Plan, or if no such written specification has ever been provided, according to Trustees' sole discretion, and shall debit and credit such participant's Deferred Compensation Account as provided in each of the applicable Plans. -3- 5 The Trustees are hereby expressly authorized to use the Account Balance of each such participant for the purpose of making payments owed to such participant in accordance with the provisions of the applicable Plan and with documents executed pursuant thereto; provided, however, that the Trustees shall have the right to deduct and withhold from all such payments any taxes required by law to be withheld with respect to such payments. SECTION III TRUSTEES POWERS The Trustees shall not be bound by any law of New Jersey with reference to the investment or reinvestment of the Trust Fund, but may invest in such securities as the Plan participants may direct or, in the absence of such direction, as the Trustees shall deem for the best interest of such Trust Fund. The Trustees are hereby expressly authorized to hold any stock or securities which may at any time form a part of the Trust Fund in the name of a nominee of such Trustees. SECTION IV RESTRICTIONS ON USE OF TRUST FUND The Account Balances forming the Trust Fund shall be devoted exclusively to the funding of the respective Plans, and shall in no part and in no event be given or contributed to or inure to the benefit of any private person or corporation other -4- 6 than the participants under the respective Plans and the Grantors in accordance with the provisions of the applicable Plan and documents executed pursuant to such Plan; provided, however, that in the event that any of the Grantors so request, the Trustees shall apply that portion of the Trust Fund credited to the Deferred Compensation Accounts of such Grantor's participants under the Plan of such Grantor pro rata according to relative values of the Account Balances then forming that Grantor's share of the Trust Fund, as required to satisfy the claims of such Grantor's general creditors. SECTION V ADDITIONS TO TRUST FUND All amounts of compensation designated as Deferred Compensation under the respective Plans shall from time to time, but not less frequently than quarterly, be contributed to the Trust by the respective Grantors, to become part of the Trust Fund and credited to the Deferred Compensation Account of the participant under the applicable Plan who would have received such compensation but for the deferral pursuant to such Plan. SECTION VI INTERESTS OF PLAN PARTICIPANTS Each participant's Deferred Compensation Account under the applicable Plan is not assignable by such participant nor such participant's beneficiary(ies), either by voluntary or -5- 7 involuntary assignment or by operation of law. No part of any Account Balance may be paid over, loaned, sold, assigned, transferred, discounted, pledged as collateral for a loan, or in any other way encumbered or alienated until the end of the Deferral Period elected with respect thereto as provided in the applicable Plan and documents executed pursuant to such Plan. Nothing herein contained shall be construed as creating any absolute or unconditional trust, express or implied, for the benefit of any participant of any of the Plans. SECTION VII GOOD FAITH DUTY OF TRUSTEES The Trustees shall be chargeable only with the exercise of good faith in carrying out the provisions of the Trust. The Trustees shall not, in the absence of bad faith, be responsible or accountable for errors of judgment in determining the total investment or reinvestment income or loss generated by the Trust Fund during the Deferral Period under the applicable Plan. Nothing herein contained shall be construed as creating any responsibility or accountability on the part of the Trustees with respect to actions taken upon investment or reinvestment specifications given by a participant of a Plan or upon instructions given by a committee under the applicable Plan. -6- 8 SECTION VIII DECISION OF TRUSTEES The act of the majority of the Trustees shall be conclusive on all matters relating to this Trust, including the management and distribution of the Account Balances. Evidence of such majority actions shall be in writing and shall be filed with the Grantors. SECTION IX DELEGATION OF DUTIES The Trustees are authorized in the discharge of their duties to employ counsel (which may be counsel to one or more of the Grantors) and/or agents and to pay them reasonable compensation which compensation shall be allocated to, and, if applicable, reimbursed to the Trustees from among, the Grantors as may be equitable in the sole determination of the Trustees. SECTION X ELIGIBILITY TO SERVE AS TRUSTEE No individual shall be eligible to serve as Trustee unless such individual, at all times while acting as such Trustee, is an officer of Commercial Bancshares, Inc. or of one of its subsidiaries and is not a participant in any of the Plans. -7- 9 SECTION XI APPOINTMENT OF SUCCESSOR TRUSTEE Any Trustee may at any time resign the office of Trustee (and in the event that a Trustee shall cease to be eligible to serve as Trustee, such Trustee's resignation shall be automatic) upon giving thirty (30) days notice to the other Trustees. In the event of a vacancy in the Trustees by resignation, death, disqualification, or otherwise, the remaining Trustees shall elect a Trustee or Trustees to fill such vacancy or vacancies from among persons eligible pursuant to Section X of this Master Trust Agreement or, if no Trustees remain to fill such vacancies, the Grantors shall fill such vacancies. Until such time as such successor Trustee is appointed, the remaining Trustees shall have full power to act under this Trust. SECTION XII DURATION OF TRUST This Trust shall be irrevocable and shall be continued and maintained as long as may be necessary, desirable or convenient for the full and complete administration of the Trust Fund as provided for herein or as may be hereafter changed or modified; provided, however, that in the event that any of the Grantors shall so request, the Trustees shall then, in such event, make distributions to that Grantor in an amount not in excess of the Trust Fund credited to the Deferred Compensation -8- 10 Accounts of such Grantor's participants under the applicable Plan in satisfaction of the claims of such Grantor's general creditors; and provided, further, that in the event of a merger, sale of assets, consolidation, other business combination or liquidation of any of the Grantors, subject to any instructions received from the committee administering such Grantor's Plan, the Trustees may in their sole discretion continue the Trust for the benefit of the participants under such Grantor's Plan or may make such provision for distribution of the Trust Fund in such participants' Deferred Compensation Accounts as they deem appropriate including, among other things, the payment of all Deferred Compensation payable to such participant notwithstanding an election by a participant with respect thereto. SECTION XIII AMENDMENT OF TRUST AGREEMENT This Trust or any of the terms hereof may be changed or amended by the Trustees and the Grantors by an instrument in writing duly executed by the Trustees and the Grantors; provided, however, that no change or amendment shall effect any revocation, in whole or in part, of the Trust hereby created, or alter the provisions for distribution upon the termination of the Trust. -9- 11 SECTION XIV RECEIPT OF TRUST FUNDS The Trustees, by joining in the execution of this instrument, acknowledge receipt of the cash set forth in Schedule "A", hereto annexed, and signify their acceptance of the Trust and agree to hold such cash under the Trust as herein provided. IN WITNESS WHEREOF, each of the Grantors has caused this Master Trust Agreement to be duly signed by its President, and its corporate seal to be hereunto affixed and attested by the Secretary or Cashier, and the Trustees have hereunto set their respective hands and seals the day and year first above written. ATTEST: COMMERCIAL BANCSHARES, INC. _______________________________ By: ________________________________ Joseph E. Des Marais, Secretary John G. Collins, President ATTEST: COMMERCIAL TRUST COMPANY OF NEW JERSEY _______________________________ By: ________________________________ Joseph E. Des Marais, Secretary Ronald C. Brown, President ATTEST: THE EDGEWATER NATIONAL BANK _______________________________ By: ________________________________ Charles Caruso, Cashier William M. Winans, President ATTEST: FIDELITY BANK & TRUST COMPANY OF NEW JERSEY -10- 12 _______________________________ By: ________________________________ James B. Groff, Secretary Richard J. Abdill, President ATTEST: N.A. HOME INVESTORS MORTGAGE CORPORATION _______________________________ By: ________________________________ Carol Albrecht, Secretary Elliot R. Jacobs, President ATTEST: LENAPE STATE BANK _______________________________ By: ________________________________ D. Lynn McLaughlin, Secretary William F. Sharp, President ATTEST: TRICO MORTGAGE COMPANY, INC. _______________________________ By: ________________________________ Asit K. Shroff, Secretary Frank J. Tricarico, President ATTEST: THE WOOD RIDGE NATIONAL BANK _______________________________ By: ________________________________ Richard J. DeRusso, Cashier Edward J. Tessalone, President _______________________________ ________________________________ Witness Stephen P. Cosgrove, Trustee _______________________________ ________________________________ Witness Benjamin Pace, Trustee _______________________________ ________________________________ Witness Trustee -11- EX-10.LLI 10 1987 STOCK OPTION PLAN 1 EXHIBIT (10)LL.(i) 2 UNITED JERSEY BANKS 1987 STOCK OPTION PLAN 3 UNITED JERSEY BANKS 1987 STOCK OPTION PLAN Article Page I. Purposes A-1 II. Amount of Stock Subject to the Plan A-1 III. Administration A-1 IV. Eligibility A-2 V. Maximum Allotment of Incentive Options A-3 VI. Option Price and Payment A-3 VII. Use of Proceeds A-3 VIII. Term of Options and Limitations on the Right of Exercise A-4 IX. Exercise of Options A-4 X. Stock Appreciation Rights A-4 XI. Nontransferability of Options and Stock Appreciation Rights A-5 XII. Termination of Employment A-5 XIII. Adjustment of Shares; Effect of Certain Transactions A-7 XIV. Right to Terminate Employment A-8 XV. Purchase for Investment A-8 XVI. Issuance of Certificates; Legends; Payment of Expenses A-8 XVII. Withholding Taxes A-9 XVIII. Listing of Shares and Related Matters A-9 XIX. Amendment of the Plan A-9 XX. Termination or Suspension of the Plan A-9 XXI. Governing Law A-10 XXII. Partial Invalidity A-10 XXIII. Effective Date A-10 i 4 UNITED JERSEY BANKS 1987 STOCK OPTION PLAN I. PURPOSES United Jersey Banks (the "Company") desires to afford certain of its key employees and the key employees of any subsidiary corporation or parent corporation of the Company now existing or hereafter formed or acquired who are responsible for the continued growth of the Company an opportunity to acquire a proprietary interest in the Company, and thus to create in such key employees an increased interest in and a greater concern for the welfare of the Company. The stock options ("Options") and stock appreciation rights ("Rights") offered pursuant to this 1987 Stock Option Plan (the "Plan") are a matter of separate inducement and are not in lieu of any salary or other compensation for the services of any key employee. The Company, by means of the Plan, seeks to retain the services of persons now holding key positions and to secure the services of persons capable of filling such positions. The Options granted under the Plan are intended to be either incentive stock options ("Incentive Options") within the meaning of Section 422A of the Internal Revenue Code of 1986 (the "Code"), or options that do not meet the requirements for Incentive Options ("Non-Qualified Options"), but the Company makes no warranty as to the qualification of any Option as an Incentive Option. II. AMOUNT OF STOCK SUBJECT TO THE PLAN The total number of shares of common stock of the Company which either may be purchased pursuant to the exercise of Options granted under the Plan or acquired pursuant to the exercise of Rights granted under the Plan shall not exceed, in the aggregate, one million three hundred thousand (1,300,000) shares of the authorized common stock, $1.20 par value per share, of the Company (the "Shares"). Shares which are subject to Rights and related Options shall be counted only once in determining whether the maximum number of Shares which may be purchased or acquired under the Plan has been exceeded. Shares which may be acquired under the Plan may be either authorized but unissued Shares, Shares of issued stock held in the Company's treasury, or both, at the discretion of the Company. If and to the extent that Options or Rights granted under the Plan expire or terminate without having been exercised, new Options or Rights may be granted with respect to the Shares covered by such expired or terminated Options or Rights, provided that the grant and the terms of such new Options or Rights shall in all respects comply with the provisions of the Plan. Except as provided in Article XXIII, the Company may, from time to time during the period beginning February 18, 1987 (the "Effective Date") and ending February 17, 1992 (the Termination Date"), grant to certain key employees of the Company, or of any subsidiary corporation or parent corporation of the Company now existing or hereafter formed or acquired, Options, Rights or both Options and Rights, under the terms hereinafter set forth. Provisions of the Plan which pertain to Options or Rights granted to an employee shall apply to Options, Rights or a combination thereof. As used in the Plan, the terms "subsidiary corporation" and "parent corporation" shall mean, respectively, a corporation coming within the definition of such terms contained in Sections 425(f) and 425(e) of the Code. III. ADMINISTRATION The board of directors of the Company (the "Board of Directors") shall designate from among its members an option committee (the "Committee"), which shall consist of no fewer than three members of the Board of Directors, each of whom shall be a "disinterested person" within the meaning of Rule 16b-3 (or any successor rule or regulation) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to administer the Plan. A majority of the members of the Committee A-1 5 shall constitute a quorum, and the act of a majority of the members of the Committee shall be the act of the Committee. Any member of the Committee may be removed at any time either with or without cause by resolution adopted by the Board of Directors, and any vacancy on the Committee may at any time be filled by resolution adopted by the Board of Directors. Any or all powers and functions of the Committee may at any time and from time to time be exercised by the Board of Directors or the Executive Committee thereof; provided, however, that, with respect to the participation in the Plan by employees who are members of the Board of Directors or of the Executive Committee, as the case may be, such powers and functions of the Committee may be exercised by the Board of Directors or the Executive Committee only if, at the time of such exercise, a majority of the members of the Board of Directors or the Executive Committee, as the case may be, and a majority of the directors acting in the particular matter, are "disinterested persons" within the meaning of Rule 16b-3 (or any successor rule or regulation) promulgated under the Exchange Act. Subject to the express provisions of the Plan, the Board of Directors or the Committee, as the case may be, shall have authority, in its discretion, to determine the employees to whom Options or Rights shall be granted, the time when such Options or Rights shall be granted to employees, the number of Shares which shall be subject to each Option or Right, the purchase price of each Share which shall be subject to each Option or Right, the period(s) during which such Options or Rights shall be exercisable (whether in whole or in part), and the other terms and provisions thereof. In determining the employees to whom Options or Rights shall be granted and the number of Shares for which Options or Rights shall be granted to each employee, the Board of Directors or the Committee, as the case may be, shall consider the length of service, the amount of earnings, and the responsibilities and duties of such employee; provided, however, that no employee shall be granted Incentive Options in any calendar year to purchase shares of stock in the Company or in any subsidiary corporation or parent corporation of the Company in excess of the maximum allotment prescribed in Article V. Subject to the express provisions of the Plan, the Board of Directors or the Committee, as the case may be, also shall have authority to construe the Plan and Options and Rights granted thereunder, to amend the Plan and Options and Rights granted thereunder, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the respective Options (which need not be identical) and Rights (which need not be identical) and to make all other determinations necessary or advisable for administering the Plan. The Board of Directors or the Committee, as the case may be, also shall have the authority to require, in its discretion, as a condition of the granting of any such Option or Right, that the employee agree (i) not to sell or otherwise dispose of Shares acquired pursuant to the Option or Right for a period of six (6) months following the date of acquisition of such Shares and (ii) that in the event of termination of employment of such employee, other than as a result of dismissal without cause, such employee will not, for a period to be fixed at the time of the grant of the Option or Right, enter into any other employment or participate directly or indirectly in any other business or enterprise which is competitive with the business of the Company or any subsidiary corporation or parent corporation of the Company, or enter into any employment in which such employee will be called upon to utilize special knowledge obtained through employment with the Company or any subsidiary corporation or parent corporation thereof. The determination of the Board of Directors or the Committee, as the case may be, on matters referred to in this Article III shall be conclusive. The Board of Directors or the Committee, as the case may be, may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Board of Directors or the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company. No member or former member of the Committee or of the Board of Directors shall be liable for any action or determination made in good faith with respect to the Plan or any Option or Right granted hereunder. IV. ELIGIBILITY Options and Rights may be granted only to salaried key employees of the Company or of any subsidiary corporation or parent corporation of the Company, except members of the Committee and A-2 6 except as hereinafter provided, and shall not be granted to any officer or director who is not also a salaried key employee. Any person who shall have retired from the active employment by the Company, although such person shall have entered into a consulting contract with the Company, shall not be eligible to receive an Option or a Right. An Incentive Option shall not be granted to any person who, at the time such Option is granted, owns stock of the Company or any subsidiary corporation or parent corporation of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any subsidiary corporation or parent corporation of the Company. In determining stock ownership of an employee, the rules of Section 425(d) of the Code shall be applied, and the Board of Directors or the Committee, as the case may be, may rely on representations of fact made to it by the employee and believed by it to be true. V. MAXIMUM ALLOTMENT OF INCENTIVE OPTIONS No employee shall be granted Incentive Options to purchase shares of stock of the Company or of any subsidiary corporation or parent corporation of the Company or any combination thereof, if the aggregate fair market value of stock with respect to which Incentive Options are exercisable for the first time by such employee during any calendar year (under all stock option plans of the Company and any parent corporation or subsidiary corporation of the Company) exceeds $100,000. For purposes of this limitation, the fair market value of stock is determined as of the time the Option is granted. To the extent permitted for purposes of Section 422A(b)(7) of the Code, the limitation set forth in this Article V shall take into account only those Incentive Options granted after December 31, 1986. VI. OPTION PRICE AND PAYMENT The price for each Share purchasable under any Option granted hereunder shall be such amount as the Board of Directors or the Committee, as the case may be, shall, in its best judgment, determine on the basis of facts and circumstances to be not less than one hundred percent (100%) of the fair market value per Share at the date the Option is granted. If the Shares are listed on a national securities exchange in the United States on the date any Option is granted, the fair market value per Share shall be deemed to be the average of the high and low quotations at which such Shares are sold on such national securities exchange on the date such Option is granted. If the Shares are listed on a national securities exchange in the United States on such date but the Shares are not traded on such date, or such national securities exchange is not open for business on such date, the fair market value per Share shall be determined as of the closest preceding date on which such exchange shall have been open for business and the Shares were traded. If the Shares are listed on more than one national securities exchange in the United States on the date any such Option is granted, the Committee shall determine which national securities exchange shall be used for the purpose of determining the fair market value per Share. For purposes of this Plan, the determination by the Board of Directors or the Committee, as the case may be, of the fair market value of a Share shall be conclusive. Upon the exercise of an Option granted hereunder, the Company shall cause the purchased Shares to be issued only when it shall have received the full purchase price for the Shares in cash; provided, however, that in lieu of cash, the holder of an Option may, if and to the extent the terms of such Option so provide and to the extent permitted by applicable law, exercise an Option in whole or in part, by delivering to the Company shares of common stock of the Company (in proper form for transfer and accompanied by all requisite stock transfer tax stamps or cash in lieu thereof) owned by such holder having a fair market value equal to the cash exercise price applicable to that portion of the Option being exercised by the delivery of such Shares. The fair market value of the stock so delivered shall be determined as of the date immediately preceding the date on which the Option is exercised, or as may be required in order to comply with or to conform to the requirements of any applicable laws or regulations. VII. USE OF PROCEEDS The cash proceeds of the sale of Shares subject to the Options granted hereunder are to be added to the general funds of the Company and used for its general corporate purposes as the Board of A-3 7 Directors shall determine. VIII. TERM OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE Unless the Board of Directors or the Committee, as the case may be, shall determine otherwise (in which event the instrument evidencing the Option granted hereunder shall so specify), any Incentive Option granted hereunder shall be exercisable during a period of not more than ten (10) years from the date of grant of such Option at such times and in such amounts as the Board of Directors or the Committee shall determine at such date of grant. Any Non-Qualified Option granted hereunder shall be exercisable at such times, in such amounts and during such period or periods as the Board of Directors or the Committee, as the case may be, shall determine at the date of the grant of such Option. The Board of Directors or the Committee shall have the right to accelerate, in whole or in part, from time to time, conditionally or unconditionally, rights to exercise any Option granted hereunder. To the extent that an Option is not exercised within the period of exercisability specified therein, it shall expire as to the then unexercised part. If any Option granted hereunder shall terminate prior to the Termination Date, the Board of Directors or the Committee, as the case may be, shall have the right to use the Shares as to which such Option shall not have been exercised to grant one or more additional Options or Rights to any eligible employee, but any such grant of an additional Option or Right shall be made prior to the close of business on the Termination Date. In no event shall an Option granted hereunder be exercised for a fraction of a share. IX. EXERCISE OF OPTIONS Options granted under the Plan shall be exercised by the optionee as to all or part of the Shares covered thereby by the giving of written notice of the exercise thereof to the Corporate Secretary of the Company at the principal business office of the Company, specifying the number of Shares to be purchased and specifying a business day not more than fifteen (15) days from the date such notice is given, for the payment of the purchase price against delivery of the Shares being purchased. Subject to the terms of Articles XV, XVII and XVIII, the Company shall cause certificates for the Shares so purchased to be delivered to the optionee at the principal business office of the Company, against payment of the full purchase price, on the date specified in the notice of exercise. X. STOCK APPRECIATION RIGHTS In the discretion of the Board of Directors or the Committee, as the case may be, a Right may be granted (i) alone, (ii) simultaneously with the grant of an Option (either Incentive or Non-Qualified) and in conjunction therewith or in the alternative thereto or (iii) subsequent to the grant of a Non-Qualified Option and in conjunction therewith or in the alternative thereto. The exercise price of a Right granted alone shall be determined by the Board of Directors or the Committee, as the case may be, but shall not be less than one hundred percent (100%) of the fair market value of one Share on the date of grant of such Right. A Right granted simultaneously with or subsequent to the grant of an Option and in conjunction therewith or in the alternative thereto shall have the same exercise price as the related Option, shall be transferable only upon the same terms and conditions as the related Option, and shall be exercisable only to the same extent as the related Option; provided, however, that a Right, by its terms, shall be exercisable only when the fair market value of the Shares subject to the Right and related Option exceeds the exercise price thereof. Upon exercise of a Right granted simultaneously with or subsequent to an Option and in the alternative thereto, the number of Shares for which the related Option shall be exercisable shall be reduced by the number of Shares for which the Right shall have been exercised. The number of Shares for which a Right shall be exercisable shall be reduced upon any exercise of a related Option by the number of Shares for which such Option shall have been exercised. Any Right shall be exercisable upon such additional terms and conditions as may from time to time be prescribed by the Board of Directors or the Committee, as the case may be. A-4 8 A Right shall entitle the holder upon exercise thereof to receive from the Company, upon a written request filed with the Secretary of the Company at its principal offices (the "Request"), a number of Shares (with or without restrictions as to substantial risk of forfeiture and transferability, as determined by the Board of Directors or the Committee, as the case maybe, in its sole discretion), an amount of cash, or any combination of Shares and cash, as specified in the Request (but subject to the approval of the Board of Directors or the Committee, as the case may be, in its sole discretion, at any time up to and including the time of payment, as to the making of any cash payment), having an aggregate fair market value equal to the product of (i) the excess of the fair market value, on the clay of such Request, of one Share over the exercise price per Share specified in such Right or its related Option, multiplied by (ii) the number of Shares for which such Right shall be exercised; provided, however, that the aggregate value of cash and Shares which may be received by a holder with respect to the Share upon exercise of a Right shall not exceed one hundred percent (100%) of the exercise price per Share under such Right. Any election by a holder of a Right to receive cash in full or partial settlement of such Right, and any exercise of such Right for cash, may be made only by a Request tiled with the Corporate Secretary of the Company during the period beginning on the third business day following the date of release for publication by the Company of quarterly or annual summary statements of earnings and ending on the twelfth business day following such date. Within thirty (30) days of the receipt by the Company of a Request to receive cash in full or partial settlement of a Right or to exercise such Right for cash, the Board of Directors or the Committee, as the case may be, shall, in its sole discretion, either consent to or disapprove, in whole or in part, such Request. A Request to receive cash in full or partial settlement of a Right or to exercise a Right for cash may provide that, in the event the Board of Directors or the Committee, as the case may be, shall disapprove such Request, such Request shall be deemed to be an exercise of such Right for Shares. If the Board of Directors or the Committee, as the case may be, disapproves in whole or in part any election by a holder to receive cash in full or partial settlement of a Right or to exercise such Right for cash, such disapproval shall not affect such holder's right to exercise such Right at a later date, to the extent that such Right shall be otherwise exercisable, or to elect the form of payment at a later date, provided that an election to receive cash upon such later exercise shall be subject to the approval of the Board of Directors or the Committee, as the case may be. Additionally, such disapproval shall not affect such holder's right to exercise any related Option or Options granted to such holder under the Plan. A holder of a Right shall not be entitled to request or receive cash in full or partial payment of such Right, if such Right or the related Option shall have been exercised during the first six (6) months of its respective term; provided, however, that such prohibition shall not apply if the holder of such Right dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the expiration of such six-month period, or if such holder is not a Director or officer of the Company or a beneficial owner of the Company who is described in Section 16(a) of the Exchange Act. A Right shall be deemed exercised on the last day of its term, if not otherwise exercised by the holder thereof, provided that the fair market value of the Shares subject to the Right exceeds the exercise price thereof on such date. XI. NONTRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS Neither an Option nor a Right granted hereunder shall be transferable, whether by operation of law or otherwise, other than by will or the laws of descent and distribution, and any Option or Right granted hereunder shall be exercisable, during the lifetime of the holder, only by such holder. XII. TERMINATION OF EMPLOYMENT Upon termination of employment of any employee with the Company and all subsidiary corporations and parent corporations of the Company, any Option or Right previously granted to the employee, unless otherwise specified by the Board of Directors or the Committee, as the case may be, in the Option or Right, shall, to the extent not theretofore exercised, terminate and become null and void, provided that; A-5 9 (a) if the employee shall die while in the employ of such corporation or during either the three (3) month or one (1) year period, whichever is applicable, specified in clause (b) below and at a time when such employee was entitled to exercise an Option or Right as herein provided, the legal representative of such employee, or such person who acquired such Option or Right by bequest or inheritance or by reason of the death of the employee, may, not later than one (1) year from the date of death, exercise such Option or Right, to the extent not theretofore exercised, in respect of any or all of such number of Shares as specified by the Board of Directors or the Committee, as the case may be, in such Option or Right; and (b) if the employment of any employee to whom such Option or related Right shall have been granted shall terminate by reason of the employee's retirement (at such age or upon such conditions as shall be specified by the Board of Directors or the Committee, as the case may be), disability (as described in Section 22(e)(3) of the Code) or dismissal by the employer other than for cause (as defined below), and while such employee is entitled to exercise such Option or Right as herein provided, such employee shall have the right to exercise such Option or Right so granted, to the extent not theretofore exercised, in respect of any or all of such number of Shares as specified by the Board of Directors or the Committee, as the case may be, in such Option or Right, at any time up to and including (i) three (3) months after the date of such termination of employment in the case of termination by reason of retirement or dismissal other than for cause and (ii) one (1) year after the date of termination of employment in the case of termination by reason of disability. In no event, however, shall any person be entitled to exercise any Option or Right after the expiration of the period of exercisability of such Option or Right as specified therein. If an employee voluntarily terminates his or her employment, or is discharged for cause, any Option or Right granted hereunder shall, unless otherwise specified by the Board of Directors or the Committee, as the case may be, in the Option or Right, forthwith terminate with respect to any unexercised portion thereof. Notwithstanding any other provision of this Article XII, if the employment of any employee with the Company and all subsidiary and parent corporations of the Company is terminated, whether voluntarily or involuntarily, within a one-year period following a change in control of the Company (as defined in Article XIII) and while such employee is entitled to exercise an Option or Right as herein provided, other than a termination of such employment by the employer for cause, such employee shall have the right to exercise all or any portion of such Option or Right at any time up to and including three (3) months after the date of such termination of employment, at which time such Option or Right shall cease to be exercisable. If an Option or Right granted hereunder shall be exercised by the legal representative of a deceased employee or former employee, or by a person who acquired an Option or Right granted hereunder by bequest or inheritance or by reason of the death of any employee or former employee, written notice of such exercise shall be accompanied by a certified copy of letters testamentary or equivalent proof of the right of such legal representative or other person to exercise such Option or Right. For the purposes of the Plan, the term "for cause" shall mean (i) with respect to an employee who is a party to a written agreement with, or, alternatively, participates in a compensation or benefit plan of the Company or a subsidiary corporation or parent corporation of the Company, which agreement or plan contains a definition of "for cause" or "cause" (or words of like import) for purposes of termination of employment thereunder by the Company or such subsidiary corporation or parent corporation of the Company, "for cause" or "cause" as defined in the most recent of such agreements or plans, or (ii) in all other cases, as determined by the Committee or the Board of Directors, in its sole discretion, (a) the willful commission by an employee of a criminal or other act that causes or will probably cause substantial economic damage to the Company or a subsidiary corporation or parent corporation of the Company or substantial injury to the business reputation of the Company or a subsidiary corporation or parent corporation of the Company; (b) the commission by an employee of an act of fraud in the performance of such employee's duties on behalf of the Company or a subsidiary corporation or parent corporation of the Company; (c) the continuing willful failure of an employee to perform the duties of such employee to the Company or a subsidiary corporation or parent corporation of the Company (other A-6 10 than such failure resulting from the employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to the employee by the Board of Directors or the Committee; or (d) the order of a federal or state bank regulatory agency or a court of competent jurisdiction requiring the termination of the employee's employment. For purposes of the Plan, no act, or failure to act, on the employee's part shall be considered "willful" unless done or omitted to be done by the employee not in good faith and without reasonable belief that the employee's action or omission was in the best interest of the Company or a subsidiary corporation or parent corporation of the Company. For the purposes of the Plan, an employment relationship shall be deemed to exist between an individual and a corporation if, at the time of the determination, the individual was an "employee" of such corporation for purposes of Section 422A(a) of the Code. If an individual is on military, sick leave or other bona fide leave of absence such individual shall be considered an "employee" for purposes of the exercise of an Option or Right and shall be entitled to exercise such Option or Right during such leave if the period of such leave does not exceed 90 days, or, if longer, so long as the individual's right to reemployment with the corporation granting the option (or a related corporation) is guaranteed either by statute or by contract. If the period of leave exceeds ninety (90) days, the employment relationship shall be deemed to have terminated on the ninety-first (91) day of such leave, unless the individual's right to reemployment is guaranteed by statute or contract. A termination of employment shall not be deemed to occur by reason of (i) the transfer of an employee from employment by the Company to employment by a subsidiary corporation or a parent corporation of the Company or (ii) the transfer of an employee from employment by a subsidiary corporation or a parent corporation of the Company to employment by the Company or by another subsidiary corporation or parent corporation of the Company. XIII. ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTIONS In the event of any change in the outstanding Shares through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or other like change in capital structure of the Company, an adjustment shall be made to each outstanding Option and Right such that each such Option and Right shall thereafter be exercisable for such securities, cash and/or other property as would have been received in respect of the Shares subject to such Option or Right had such Option or Right been exercised in full immediately prior to such change, and such an adjustment shall be made successively each time any such change shall occur. The term "Shares" shall after any such change refer to the securities, cash and/or property then receivable upon exercise of an Option or Right. In addition, in the event of any such change, the Board of Directors or the Committee, as the case may be, shall make any further adjustment as may be appropriate to the maximum number of Shares subject to the Plan, the maximum number of Shares for which Options or Rights may be granted to any one employee, and the number of Shares and price per Share subject to outstanding Options or Rights as shall be equitable to prevent dilution or enlargement of rights under such Options or Rights, and the determination of the Board of Directors or the Committee, as the case may be, as to these matters shall be conclusive. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Option and any related Right shall comply with the rules of Section 425(a) of the Code, and (ii) in no event shall any adjustment be made which would render any Incentive Option granted hereunder other than an incentive stock option for purposes of Section 422A of the Code. In the event of a change in control of the Company, all then outstanding Options and Rights shall immediately become exercisable. For purposes of the Plan, a "change in control" of the Company occurs if; (a) any "person" (defined as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act, as amended) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty-three percent or more of the combined voting power of the Company's outstanding securities then entitled to vote for the election of directors; or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority thereof; or (c) the Company shall become subject to the delisting of the Shares by the New York Stock Exchange or any successor exchange in respect of the number A-7 11 of publicly-held Shares or the number of stockholders holding one hundred Shares or more; or (d) the Board of Directors shall approve the sale of all or substantially all of the assets of the Company; or (e) the Board of Directors shall approve any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of any event described in clause (a), (b) or (c) above. The Board or Directors or Committee, as the case may be, in its discretion, may determine that, upon the occurrence of a transaction described in the preceding paragraph, each Option or Right outstanding hereunder shall terminate within a specified number of days after notice to the holder, and such holder shall receive, with respect to each Share subject to such Option or Right, cash in an amount equal to the excess of the fair market value of such Share immediately prior to the occurrence of such transaction over the exercise price per Share of such Option or Right. The provisions contained in the preceding sentence shall be inapplicable to an Option or Right granted within six (6) months before the occurrence of a transaction described above if the holder of such Option or Right is a Director or officer of the Company or a beneficial owner of the Company who is described in Section 16(a) of the Exchange Act, unless such holder dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the expiration of such six-month period. XIV. RIGHT TO TERMINATE EMPLOYMENT The Plan shall not impose any obligation on the Company or on any subsidiary corporation or parent corporation thereof to continue the employment of any holder of an Option or Right; and it shall not impose any obligation on the part of any holder of an Option or Right to remain in the employ of the Company or of any subsidiary corporation or parent corporation thereof. XV. PURCHASE FOR INVESTMENT Except as hereafter provided, the holder of an Option or Right granted hereunder shall, upon any exercise thereof, execute and deliver to the Company a written statement, in form satisfactory to the Company, in which such holder represents and warrants that such holder is purchasing or acquiring the Shares acquired thereunder for such holder's own account, for investment only and not with a view to the resale or distribution thereof, and agrees that any subsequent offer for sale or sale or distribution of any of such Shares shall be made only pursuant to either (a) a Registration Statement on an appropriate form under the Securities Act of 1933, as amended (the "Securities Act"), which Registration Statement has become effective and is current with regard to the Shares being offered or sold, or (b) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption the holder shall, prior to any offer for sale or sale of such Shares, obtain a prior favorable written opinion, in form and substance satisfactory to the Company, from counsel for or approved by the Company, as to the applicability of such exemption thereto. The foregoing restriction shall not apply to (i) issuances by the Company so long as the Shares being issued are registered under the Securities Act and a prospectus in respect thereof is current or (ii) reofferings of Shares by affiliates of the Company (as defined in Rule 405 or any successor rule or regulation promulgated under the Securities Act) if the Shares being reoffered are registered under the Securities Act and a prospectus in respect thereof is current. XVI. ISSUANCE OF CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES Upon any exercise of an Option or Right which may be granted hereunder and, in the case of an Option, payment of the purchase price, a certificate or certificates for the Shares as to which the Option or Right has been exercised shall be issued by the Company in the name of the person exercising the Option or Right and shall be delivered to or upon the order of such person or persons. The Company may endorse such legend or legends upon the certificates for Shares issued upon exercise of an Option or Right granted hereunder and may issue such "stop transfer" instructions to its transfer agent in respect of such Shares as, in its discretion, it determines to be necessary or appropriate to (i) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act, (ii) implement the provisions of the Plan and any agreement between the Company and the optionee or grantee with respect to such Shares, or (iii) permit the Company to determine the A-8 12 occurrence of a disqualifying disposition, as described in Section 421(b) of the Code, of Shares transferred upon exercise of an Incentive Option granted under the Plan. The Company shall pay all issue or transfer taxes with respect to the issuance or transfer of Shares, as well as all fees and expenses necessarily incurred by the Company in connection with such issuance or transfer, except fees and expenses which may be necessitated by the filing or amending of a Registration Statement under the Securities Act, which fees and expenses shall be borne by the recipient of the Shares unless such Registration Statement has been filed by the Company for its own corporate purposes (and the Company so states) in which event the recipient of the Shares shall bear only such fees and expenses as are attributable solely to the inclusion of the Shares he or she receives in the Registration Statement. All Shares issued as provided herein shall be fully paid and non-assessable to the extent permitted by law. XVII. WITHHOLDING TAXES The Company may require an employee exercising a Right or a Non-Qualified Option granted hereunder, or disposing of Shares acquired pursuant to the exercise of an Incentive Option in a disqualifying disposition (within the meaning of Section 421(b) of the Code), to reimburse the corporation that employs such employee for any taxes required by any government to be withheld or otherwise deducted and paid by such corporation in respect of the issuance or disposition of Shares. In lieu thereof, the corporation that employs such employee shall have the right to withhold the amount of such taxes from any other sums due or to become due from such corporation to the employee upon such terms and conditions as the Board of Directors or the Committee, as the case may be, shall prescribe. XVIII. LISTING OF SHARES AND RELATED MATTERS If at any time the Board of Directors shall determine in its discretion that the listing, registration or qualification of the Shares covered by the Plan upon any national securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the sale or purchase of Shares under the Plan, no Shares shall be issued unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Board of Directors. XIX. AMENDMENT OF THE PLAN The Board of Directors may, from time to time, amend the Plan, provided that no amendment shall be made, without the approval of the shareholders of the Company, that will (i) increase the total number of Shares reserved for Options under the Plan (other than an increase resulting from an adjustment provided for in Article XIII), (ii) reduce the exercise price of any Incentive Option granted hereunder below the price required by Article VI, (iii) modify the provisions of the Plan relating to eligibility, or (iv) materially increase the benefits accruing to participants under the Plan. The Board of Directors or the Committee, as the case may be, shall be authorized to amend the Plan and the Options granted thereunder to permit the Incentive Options granted thereunder to qualify as incentive stock options within the meaning of Section 422A of the Code. The rights and obligations under any Option or Right granted before amendment of the Plan or any unexercised portion of such Option or Right shall not be adversely affected by amendment of the Plan or the Option or Right without the consent of the holder of the Option or Right. XX. TERMINATION OR SUSPENSION OF THE PLAN The Board of Directors may at any time suspend or terminate the Plan. The Plan, unless sooner terminated under Article XXIII or by action of the Board of Directors, shall terminate at the close of business on the Termination Date. An Option or Right may not be granted while the Plan is suspended or after it is terminated. Rights and obligations under any Option or Right granted while the Plan is A-9 13 in effect shall not be altered or impaired by suspension or termination of the Plan, except upon the consent of the person to whom the Option or Right was granted. The power of the Board of Directors or the Committee, as the case may be, to construe and administer any Options or Rights granted prior to the termination or suspension of the Plan under Article III nevertheless shall continue after such termination or during such suspension. XXI. GOVERNING LAW The Plan, such Options and Rights as may be granted thereunder and all related matters shall be governed by, and construed and enforced in accordance with, the laws of the State of New Jersey from time to time obtaining. XXII. PARTIAL INVALIDITY The invalidity or illegality of any provision herein shall not be deemed to affect the validity of any other provision. XXIII. EFFECTIVE DATE The Plan shall become effective at 5:00 P.M., New York City time, on the Effective Date, the date on which the Plan was adopted by the Board of Directors; provided, however, that if the Plan is not approved by a vote of the shareholders of the Company at an annual meeting or any special meeting or by unanimous written consent within twelve (12) months before or after the Effective Date, the Plan and any Options and Rights granted thereunder shall terminate. A-10 EX-13 11 1996 ANNUAL REPORT 1 SUMMIT BANCORP ANNUAL REPORT 1996 [PICTURE OF MONT BLANC] SUMMIT: REACHING HIGHER 2 SUMMIT BANCORP, A LEADING REGIONAL FINANCIAL SERVICES ORGANIZATION, IS HEADQUARTERED IN PRINCETON, NEW JERSEY. WITH $23 BILLION IN ASSETS AND OVER $18 BILLION IN DEPOSITS, IT IS THE 31ST LARGEST BANK HOLDING COMPANY IN THE UNITED STATES. SUMMIT'S EXTENSIVE NETWORK OF TRADITIONAL AND IN-STORE BRANCHES AND ATMS SERVES CUSTOMERS THROUGHOUT NEW JERSEY AND EASTERN PENNSYLVANIA. CONTENTS ... FINANCIAL HIGHLIGHTS PAGE 1 LINES OF BUSINESS PAGE 2 CHAIRMAN'S MESSAGE PAGE 4 REACHING HIGHER SERVING BETTER PAGE 7 BOARD OF DIRECTORS PAGE 16 GLOSSARY OF TERMS PAGE 18 FINANCIAL REVIEW PAGE 19 CORPORATE DIRECTORY PAGE 55 SHAREHOLDER AND CORPORATE INFORMATION PAGE 57 ABOUT THE COVER: IN THE FRENCH ALPS, MONT BLANC SOARS TO MAGNIFICENT HEIGHTS. SUMMIT BANCORP IS ALSO "REACHING HIGHER" FOR OUR CUSTOMERS, OUR SHAREHOLDERS AND OUR EMPLOYEES. 3 SUMMIT BANCORP AND SUBSIDIARIES FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Percent (Dollars in thousands, except per share data) 1996 1995 Change - ---------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 Before non-recurring items(*) Net income: Dollars ............................................. $ 305,919 $ 242,870 26.0 Per common share .................................... 3.26 2.77 17.7 After non-recurring items(*) Net income: Dollars ............................................. 229,175 242,870 (5.6) Per common share .................................... 2.44 2.77 (11.9) Per common share: Cash dividends declared ............................. 1.36 1.19 14.3 Book value .......................................... 20.51 19.89 3.1 Market value ........................................ 43.75 35.63 22.8 ================================================================================================================= BALANCE SHEET DATA AT DECEMBER 31 Total assets .......................................... $22,668,012 $21,536,935 5.3 Total deposits ........................................ 18,374,986 17,955,103 2.3 Demand deposits ..................................... 3,984,366 3,873,801 2.9 Savings and time deposits ........................... 13,779,803 13,373,864 3.0 Total loans ........................................... 14,819,595 14,019,574 5.7 Commercial .......................................... 5,266,665 5,321,047 (1.0) Commercial mortgage ................................. 2,313,610 2,315,384 (.1) Residential mortgage ................................ 3,795,752 3,296,818 15.1 Consumer ............................................ 3,443,568 3,086,325 11.6 Shareholders' equity .................................. 1,926,873 1,802,316 6.9 Allowance for loan losses ............................. 267,719 279,034 (4.1) ================================================================================================================= CONSOLIDATED RATIOS Before non-recurring items(*) Return on average assets ............................ 1.38% 1.16% 19.0 Return on average common equity ..................... 16.61 14.82 12.1 After non-recurring items(*) Return on average assets ............................ 1.03 1.16 (11.2) Return on average common equity ..................... 12.41 14.82 (16.3) Efficiency ratio ...................................... 53.39 57.55 (7.2) Tier I capital to average assets (leverage) ........... 8.06 7.97 1.1 Tier I capital to risk-adjusted assets ................ 11.09 10.75 3.2 Total capital to risk-adjusted assets ................. 13.75 13.46 2.2 Allowance for loan losses to year-end loans ........... 1.81 1.99 (9.0) Non-performing loans to year-end loans ................ .89 1.34 (33.6) =================================================================================================================
(*) Non-recurring items for 1996 include $70 million after tax, or $.75 per common share, of merger-related restructuring charges and a supermarket branch initiative charge, in addition to a $6.7 million after tax, or $.07 per common share, of a one-time Savings Association Insurance Fund assessment. NET INCOME PER SHARE BEFORE AND AFTER NON-RECURRING ITEMS
YEAR BEFORE AFTER - ---- ------ ----- 1992 $1.13 $1.13 1993 1.61 1.57 1994 2.22 1.8 1995 2.77 2.77 1996 3.26 2.44
ANNUAL INDICATED DIVIDEND
YEAR - ---- 1992 $0.60 1993 0.84 1994 1.04 1995 1.28 1996 1.44
RETURN ON AVERAGE ASSETS BEFORE AND AFTER NON-RECURRING ITEMS(IN PERCENT)
YEAR BEFORE AFTER - ---- ------- ----- 1992 0.48 0.48 1993 0.72 0.7 1994 0.94 0.76 1995 1.16 1.16 1996 1.38 1.03
1 4 LINES OF BUSINESS COMMERCIAL BANKING FOCUS Provides a full array of commercial financial services including asset based lending, international trade financing, foreign exchange, equipment financing, leasing, term lending, commercial real estate financing, private placement, mezzanine financing, aircraft financing, correspondent banking, treasury services and structured finance MARKET PENETRATION - - N.J.'s largest commercial and industrial lender, serving 30,000 clients and 15 major industry groups - - Recognized leader in providing financial services to middle market companies - - One of largest N.J. asset based lenders; offices in New York City, Stamford, Conn., Philadelphia area HIGHLIGHTS OF 1996 - - Significant growth in asset based lending portfolio to over $1 billion - - Restructured business into distinct units to serve segmented markets - - Business Banking Group formed to serve the 9,200 businesses in the region with annual sales of $5-$15 million - - Introduced Commercial Customer Service Center KEY MARKET DATA COMMERCIAL LOAN PORTFOLIO (IN PERCENT) REAL ESTATE 36.5 MIDDLE MARKET 19.5 ASSET BASED 13.6 LARGE CORPORATIONS 7.2 LEASING 6.2 BUSINESS BANKING 5.1 HEALTH CARE 4.9 INTERNATIONAL 3.4 MEDIA 3.4
REACHING HIGHER, LOOKING AHEAD - - Pursue growth opportunities in lower middle market, asset based lending, international trade services, health and medical, communications and media - - Seek to maximize business potential in all areas through aggressive sales and marketing programs - - Build on asset based lending capability with Summit Commercial Corp., offering new financing opportunities RETAIL BANKING FOCUS Delivers retail banking products and services to consumers and small businesses through 335 traditional banking offices, 16 supermarket branches, a dozen mini-branches and state-of-the-art telephone banking centers in N.J. and eastern Pa. MARKET PENETRATION - - #1 deposit market share in N.J. and #5 in the 13 counties we serve in Pa. - - More than 500 automated teller machines (ATMs) in N.J., N.Y. and Pa. including 200 off-site - - Largest N.J. issuer of Visa check cards to individuals and small businesses; nearly one million debit cards outstanding - - Largest merchant bankcard processor in N.J. and 43rd in the nation HIGHLIGHTS OF 1996 - - Became major regional player in supermarket banking - - First bank in N.J. and eastern Pa. to dispense U.S. postage stamps through nearly 200 ATMs - - Customer Call Center processed 12 million calls - - Reduced turnaround time to one day for lower-end small business loans KEY MARKET DATA CUSTOMER CALL CENTER ANNUAL CALL VOLUME (CALLS IN MILLIONS)
YEAR 1992 2.5 1993 3.2 1994 4.9 1995 6.5 1996 12.0
REACHING HIGHER, LOOKING AHEAD - - Capitalize on Managing Local Markets, a market-driven approach to sales delivery - - Expand role of alternative delivery systems such as ATMs, PC, telephone banking and Customer Call Center - - Introduce Summit PC Banking - - Expand Customer Call Center to 24-hour live operation - - Continue supermarket branch initiative; over 70 branches planned by end 1999 2 5 LINES OF BUSINESS TRUST & INVESTMENT SERVICES FOCUS Provides a full range of investment products and administrative and custodial services, including discount brokerage, to individuals and institutions, and a wide array of insurance products for the personal and corporate marketplace MARKET PENETRATION - - Assets totaling $1.6 billion in 15 Pillar Funds - - Summit Discount Brokerage offices in 10 high-profile locations - - Total trust assets under management of $23 billion and discretionary assets of $7 billion - - 60 licensed financial services advisors HIGHLIGHTS OF 1996 - - Four-star rating awarded to five Pillar Funds by Morningstar; highest five-star rating to Pillar Equity Value Fund - - Enhanced cross-sell opportunities with retail branches and The Private Bank - - Established network links between offices to improve online communications KEY MARKET DATA PILLAR FUNDS NET ASSET VALUE (IN BILLIONS)
YEAR 1992 $0.835 1993 1.100 1994 1.100 1995 1.400 1996 1.600
REACHING HIGHER, LOOKING AHEAD - - Opened new Summit Discount Brokerage office in N.Y.; additional offices planned in N.J., Pa. - - Create specialized investment products for niche markets; Special Needs Trust for families of disabled, Trust Care for seniors - - Introduce niche market - The Women's Financial Future at Summit Bank - - Focus on baby boomers' retirement needs PRIVATE BANKING FOCUS Offers customers a creative response to their financial needs including borrowing, investments, insurance, retirement and estate planning MARKET PENETRATION - - Premier provider of products and services to lawyers and CPAs - - Leading deposit escrow product for law firms and realtors - - Growing market share among medical professionals - - Niche strategy increasingly includes residential and investment real estate financing HIGHLIGHTS OF 1996 - - Opened private banking office in New York City to better serve N.J. commuters and clients in N.Y. and Conn. - - Expanded cross-sell and referral programs with other business lines to take advantage of large high net worth market - - Actively promoted "team" approach to managing private banking relationships KEY MARKET DATA [CHART OF PRIVATE BANKING-INCLUDES THE FOLLOWING AREAS BUSINESS & PERSONAL LOANS DEPOSIT PRODUCTS JUMBO MORTGAGES INVESTMENT SERVICES INSURANCE TRUST & ESTATE PLANNING] REACHING HIGHER, LOOKING AHEAD - - Open private banking and investment services office in Philadelphia area to include discount brokerage - - Increase market penetration by targeting younger audience and customers with net worth of $1 million including real estate - - Expand share of niche markets and create new ones; focus on women - - Further expand business link with Trust and Investment Services MORTGAGE BANKING FOCUS Provides a complete range of full-service mortgage banking activities, from origination through servicing, to take customers from application to final payoff MARKET PENETRATION - - Largest originator of residential mortgages in N.J. and a strong presence in Pa. trade area - - Residential servicing portfolio of $5 billion - - Residential mortgage portfolio of $3.8 billion HIGHLIGHTS OF 1996 - - Nearly $1 billion of new residential mortgage originations - - Achieved increase of 15.1% in residential mortgage portfolio over prior year - - Integrated two of N.J.'s largest residential mortgage originators KEY MARKET DATA RESIDENTIAL MORTGAGE LOANS AT DECEMBER 31, (IN BILLIONS)
YEAR 1992 $2.0975 1993 2.1480 1994 2.8033 1995 3.2968 1996 3.7958
REACHING HIGHER, LOOKING AHEAD - - Achieve greater market penetration by utilizing strength of Summit franchise - - Implement cross-sell strategy for referrals from other lines of business - - Build future income stream of servicing fees from originations - - Pursue alternative delivery channels including direct marketing - - Continue to streamline mortgage process to reach goal of 24-hour approval 3 6 CHAIRMAN'S MESSAGE [PICTURE: (LEFT) PRESIDENT ROBERT G. COX, (RIGHT) CHAIRMAN AND CHIEF EXECUTIVE OFFICER, T. JOSEPH SEMROD] It is tempting to remember 1996 solely as the year we finalized the merger of UJB Financial Corp and The Summit Bancorporation. We are proud of the synergy produced by this union and the strength of our new $23 billion organization. Our position will be further enhanced by our February 28, 1997 announcement of a merger agreement with Collective Bancorp, Inc., a thrift holding company with $5.5 billion in assets. Without question, the numerous acquisitions that we have integrated over the past two years have strongly enhanced our ability to compete going forward. We are now the largest bank in New Jersey and the leader in deposit market share. With the Collective merger, we will have 16.1 percent of the state's deposits, and hold the number one market share in nine New Jersey counties. Summit will then have relationships with 1.2 million of New Jersey's nearly three million households. We continue to rank fifth in deposits in eastern Pennsylvania where we serve 13 counties. In 1996, a year of transition and merger integration, our financial performance has been impressive with 26 percent growth in operating earnings excluding non-recurring charges. The cost savings that we achieved through the successful integration of our acquisitions combined with revenue growth resulted in improvement in our key profitability measures. Return on assets for 1996 was 1.38 percent, and return on common equity rose to 16.61 percent. The efficiency ratio, a measure of productivity, improved to 53.39 percent. We are also pleased with the continued improvement in asset quality measures such as the decline in non-performing loans to under one percent of loans. 4 7 [CAPTION: WE ARE NOW THE LARGEST BANK IN NEW JERSEY AND THE LEADER IN DEPOSIT MARKET SHARE.] After increasing the dividend in December 1995, the Board of Directors again raised the common stock dividend in August 1996 -- this time to $.36 per common share. The annualized dividend is now $1.44, the highest in our 26 year history. Summit has achieved cost savings while maintaining revenue growth. Our five lines of business have undertaken many new initiatives to be even more responsive to customers. Our alternative delivery systems have been expanded to better meet customer needs and also to lower our cost of doing business. Over the past year, Summit has put the mechanisms in place to "reach higher" and serve our customers better. At Summit, the customer is our first priority. We have now rolled out our Managing Local Markets program throughout our retail banking operation. This program studies customer preference and profitability potential, and concentrates on local market information. It is our belief that market segmentation, at the narrowest definition possible, is the key to delivering the right products to the right customers through the right delivery channels. Our challenges are to earn a larger share of our customers' profit potential, effectively manage our expenses and simultaneously offer quality customer service. During 1996, we advanced our image as a regional market leader in the in-store banking arena. Summit now has 16 supermarket branches in Pathmark, A&P and ShopRite stores in New Jersey and eastern Pennsylvania. By the end of 1999, we plan to have over 70. While in-store branches offer added convenience to our customers, there is also a secondary benefit. The supermarket branches have a much lower entry cost and significantly reduced annual operating expenses. During the past year, we have initiated or completed six acquisitions that have allowed us to strengthen our market share in attractive New Jersey 5 8 [CAPTION: SUMMIT OFFERS THE VERSATILITY OF A LARGE REGIONAL BANK COMBINED WITH THE SOUL OF A SMALL COMPANY.] counties such as Middlesex, Burlington, Hunterdon, Ocean, and Atlantic. Summit has a strong acquisition process. We are skilled in merger integration and cost savings, which have averaged 50 percent within the first year through consolidation of back office operations and branches. Through our acquisition strategy, we have created a company that has the products, services and marketing power of a large, regional financial services organization, but the customer-focused approach of a community bank. In other words, Summit offers the versatility of a large bank combined with the soul of a small company. At Summit, diversity is an organizational strategy tied directly to the corporation's business strategy. Surely, the most successful companies in the 21st century will be those that welcome and reflect the changing face of society and that respect the differences among their customers and staff. By actively valuing diversity, we become a stronger, more competitive company that makes use of all the talent and expertise available. When UJB Financial merged with The Summit Bancorporation, former Summit Chairman Thomas D. Sayles, Jr. joined our Board. Mr. Sayles will be retiring this April, and we are grateful for his guidance. Long involved in New Jersey banking, he has earned the highest respect from his industry peers. At Summit Bancorp, we have recreated our internal structure from the ground up. We will continue to challenge ourselves and our strategies to ensure that we remain strong competitors in today's rapidly changing business environment. Our lines of business -- wholesale, retail and mortgage banking as well as investment management and private banking -- are "reaching higher" and looking ahead to the challenges and opportunities in 1997. We thank you, our shareholders, for your trust, and we remain committed to long-term earnings growth and maximizing shareholder value. /s/ T. Joseph Semrod /s/ Robert G. Cox T. Joseph Semrod Robert G. Cox Chairman and Chief Executive Officer President March 7, 1997 6 9 [PICTURE: SUMMIT CUSTOMER ENTERING A BRANCH OF SUMMIT BANCORP] 1996 SUMMIT BANCORP [CAPTION: At Summit, "Reaching Higher" is an important part of our corporate culture and business focus. The following pages describe how our lines of business -- commercial, retail, mortgage banking, investment management and private banking -- are finding solutions for Summit customers.] 7 10 [PICTURE PRODUCTS OF OUR COMMERCIAL CUSTOMERS] [CAPTION: What has positioned Summit as the preeminent financial organization in the commercial marketplace?] 8 11 [PICTURE: MARYLOU BARREIRO, V.P. MIDDLE MARKET LENDING] [CAPTION "As a commercial clients' relationship manager, I'm empowered to specifically structure credit terms and rates based on my clients' growth strategies and needs. I am especially enthused about serving clients in markets such as Newark where I've found significant new business opportunities. The gains here are endless. What really separates Summit from the competition is that my clients can build relationships with Summit's very stable senior management."] /s/ MaryLou Barreiro, MaryLou Barreiro, Vice President Middle Market Lending Commercial Banking Pictured: Summit's commercial loan portfolio is highly diverse and includes 15 major industry groups. Summit is recognized in the marketplace as the largest commercial and industrial lender headquartered in New Jersey. Our proactive, intense sales culture helps our relationship managers find creative solutions to their commercial clients' borrowing needs. Relationship managers coordinate with other lines of business to ensure that their clients' needs are met with appropriate solutions. In addition, Summit's senior management routinely meets with our commercial clients to help devise innovative financial strategies. We are the recognized New Jersey based provider of financial services to middle market companies. New Jersey and eastern Pennsylvania boast over 14,000 middle market companies which provide growth and revitalization to our marketplace. One of our region's strengths is the diversity of small and mid-size businesses. In fact, 90 percent of the companies in New Jersey have sales under $15 million. This is Summit's fastest growing business segment, and our unique orientation effectively targets this market. We've created a business banking group just to focus on the 9,200 companies in New Jersey and eastern Pennsylvania with sales between $5 million and $15 million. Summit is one of the largest asset based bank lenders in the Northeast with offices in New Jersey, New York City, the Philadelphia area and Stamford, Connecticut. During 1996, asset based lending showed significant growth, and loans now total over $1 billion. To help us remain successful in an increasingly competitive environment, asset based lending has been incorporated into a newly formed entity, Summit Commercial Corp. (SCC). SCC will serve as the umbrella for all specialty lending activity that takes place in this market including asset based lending, structured finance, corporate aircraft lending, trade finance, Employee Stock Ownership Plan lending, commercial finance and leasing. Our commercial clients benefit because decisions can be made expeditiously, yet the borrower still retains the benefits of working with a $23 billion regional institution. Through our commercial real estate sector, we are able to provide a variety of real estate related financing services. Examples include construction project financing and commercial mortgages -- using varied structures and pricing to meet any need. Just as businesses in New Jersey are highly diverse, so is Summit's loan portfolio. We have 15 major industry groups each with balances of over $50 million. They range from printing and publishing to wholesale machinery equipment, advertising agencies to wholesale groceries, manufacturers of rubber products to business credit services. Growth opportunities in 1996 and into 1997 include the lower middle market companies where we believe that our extensive branch system and streamlined delivery process give us a competitive edge. Summit also remains strong in the health-medical field where our portfolio is focused on relationships with hospitals and medical practices. Likewise, Summit continues to see growth prospects in communications where our commercial relationship managers are seasoned professionals. Newspapers, radio and television rely upon us for their financial needs, and even other banks look to our experience in this specialized area. 9 12 [PICTURE: DEBORAH PARKER STOUT, A V.P. BRANCH MANAGER] [CAPTION "Through Managing Local Markets, I better understand my community. I can identify the premiere customers that I want to retain and find potential ones that may need additional services. I learn my customers' buying habits and their banking needs. By targeting a specific group of consumers, I can anticipate a greater success ratio and am able to track my results."] /s/ Deborah Parker Stout, Deborah Parker Stout, Assistant Vice President Branch Manager Retail Banking Pictured: By the end of 1999, Summit expects to have over 70 supermarket branches in New Jersey and Pennsylvania. As a regional leader in retail banking, we understand that distribution channels must be aligned to customer needs. Traditional full-service banking offices have become a less dominant form of service delivery. Therefore, we have reduced their number from 381 to 335, and have expanded our alternative delivery channels and in-store branches. Summit has already established itself as a major player in supermarket banking in our region. During 1997, we plan to open over 25 new locations, and by the end of 1999 we expect to have over 70 supermarket branches in New Jersey and Pennsylvania. We have placed major emphasis on alternative delivery systems. Examples include automated teller machines (ATMs), PC banking, express offices and telephone banking. Currently, more than half of our transactions are performed electronically or by telephone, which substantially lowers our costs. Many of our 500 ATMs also dispense postage stamps; we were the first bank in New Jersey and eastern Pennsylvania to offer this service. Of note, Summit is one of the major banks in our region to offer free basic PC banking services to customers. We view PC banking as a strategic channel in the delivery of services in the years ahead because it gives customers a direct link to our bank from their nearest computer. One way that Summit remains cost effective yet provides top customer service is with our Customer Call Center. By dialing 1-800-282-BANK, customers can for free obtain information on account balances, see if a check has cleared, transfer balances, make an application for a loan or open an account. We have been able to improve answering time to within one minute. Early in the second quarter of 1997, the Call Center will have operators taking calls 24 hours a day, seven days a week. A strategic initiative called Managing Local Markets (MLM) is now operating throughout the Summit organization. It is a market driven approach to sales and sales delivery which focuses on selling the right products to the right customers through the right delivery channels. The program uses market segmentation and recognizes the distinct demographic characteristics of 93 separate markets we serve in New Jersey and eastern Pennsylvania. Above all, MLM makes Summit employees highly responsive to local community needs. Summit community bankers are also very attuned to the needs of small business customers with annual sales of up to $5 million. There are 450,000 small businesses operating in New Jersey and eastern Pennsylvania. During 1996, we centralized our back office operations for small business which resulted in one day approval for loan requests up to $35,000, and approval within three business days for up to $100,000. We expect that this will further improve during 1997. Summit is a Small Business Administration preferred lender in both New Jersey and Pennsylvania. We also specialize in community real estate loans which offer very attractive terms and rates. By simplifying both documentation and process, we have reduced customers' closing costs and improved approval time to ten days. 10 13 [PICTURE: SUMMIT SUPERMARKET BRANCH] [CAPTION: WHAT MAKES SUMMIT A LEADER IN OFFERING PRODUCTS AND SERVICES THAT MEET LOCAL CUSTOMER NEEDS?] 11 14 [PICTURE: SUMMIT EMPLOYEES REVIEWING AN INVESTMENT REPORT] [CAPTION: HOW HAS SUMMIT FURTHER ENHANCED SERVICE TO INVESTMENT MANAGEMENT, TRUST AND PRIVATE BANKING CLIENTS?] 12 15 [PICTURE: FERNANDO N. GARIP, V.P. REGIONAL MANAGER, INVESTMENT MANAGEMENT] [CAPTION: "I now have a nationally competitive product to offer my clients and can provide the highest level of client service. In fact, customers can speak directly to portfolio managers responsible for their fund who are also part of the community where the customer lives or works. Our technology, combined with our local and regional presence, gives Summit a clear advantage over the competition."] /s/ Fernando N. Garip Fernando N. Garip, Vice President Regional Manager Investment Management Pictured: (from left) William C. Gascoigne, vice president, and Thomas H. Loester, vice president, from Private Banking confer on the best solutions for a client with Beverly A. Ebanks, vice president, and Peter T. Lillard, vice president, from Investment Management. One of the major strengths of the merger of UJB Financial and The Summit Bancorporation was the synergy created in investment services and private banking. UJB already had strong trust and investment management relationships with institutions and middle market companies, while Summit's strength was individual investment and trust clients. In private banking today, Summit is the bank of choice in the professionals market with lawyers, accountants and their firms. We also have the leading deposit escrow product for law firms and realtors. In investment services, Summit Bancorp has a broad product line with 15 proprietary mutual funds. When national ratings were last issued, five Pillar Funds received a four star rating from Morningstar, a mutual fund analytical service. Our Equity Value Fund received the highest rating -- five stars. As of February 1997, these funds totaled over $2 billion, and we are focusing on additional growth in 1997. Many of our customers have expressed their pleasure in dealing with a home-based institution whose investment decision making takes place in regional offices in New Jersey and eastern Pennsylvania. The advanced technology that we have implemented over the past year has benefited investment and economic analysis. In addition to traditional trust and estate services, Summit is now also offering Special Needs Trusts for handicapped and disabled persons, as well as Trust Care for seniors who need additional services. In January 1997, Summit Discount Brokerage opened its first New York office in New City, Rockland County, adjacent to Bergen County, one of our strongest markets. This venture marks our tenth discount brokerage office. We anticipate opening three additional offices in New Jersey and one in Pennsylvania during 1997 to meet the needs of our expanding customer base. Summit's private bankers offer customers a timely and creative response to their financial needs including borrowing, investments, insurance, retirement and estate planning. The resources of our larger organization enable us to provide quality customer service, even as we have remained a relationship driven private bank. In 1996, Summit opened a private banking office in New York City to accommodate New Jersey residents who work in the city, as well as individuals and professionals from Connecticut and New York. We anticipate opening a private banking and investment services office in the Philadelphia area which would include a discount brokerage operation. Our 1997 efforts will include programs specifically tailored for women, including entrepreneurs, corporate executives, and other professional high net worth, high income individuals -- including women with such potential. We are also focusing on "baby boomers" whose needs typically include 401(k)s or estate planning. Summit is also ready to handle their credit needs for college tuition, a vacation home or an investment. 13 16 [PICTURE: JAMES G. NAPODA, V.P. PRIVATE BANKING] [CAPTION: "As a private banker, I can structure a credit facility custom-tailored to my client's unique circumstances. Summit's management supports all my efforts on behalf of my clients, and that's why I can't think of a better place to work. As a four time New York City Marathon runner, I like to think that I go the extra mile -- or 26 -- for my customers." /s/ James G. Napoda James G. Napoda, Vice President Private Banking Pictured: Summit serves a very diverse customer base from young couples to retirees, lawyers to women entrepreneurs. Success in banking means constantly expanding your customer base through acquisitions and internal growth. Summit Bancorp has achieved its premier franchise through deliberately planned internal and external growth. On February 28, 1997, we announced the acquisition of Collective Bancorp, Inc., a thrift holding company with $5.5 billion in assets and branches throughout 15 counties in New Jersey. We are one of the most active acquirers in our region. However, at Summit we realize that cost savings are only one component of a successful acquisition. Customer retention is crucial. Great effort is placed on retaining and expanding relationships with customers of acquired organizations. Summit's ten acquisitions completed or announced in the past few years have helped us to garner relationships with 40 percent of New Jersey's nearly three million households. When all of these are completed, we will command one of the top three market shares in 16 of New Jersey's 21 counties -- we'll be number one in nine counties. Our expanded customer base has allowed us to serve our region's diverse cultures. SUMMIT'S ESTIMATED HOUSEHOLD GROWTH FROM ACQUISITIONS - -------------------------------------------------------------------------------- Household base before recent acquisitions ........................... 720,400 July 1994 VSB Bancorp, Inc. ........................... 14,000 September 1994 Palisade Savings Bank, FSB .................. 14,000 July 1995 Bancorp New Jersey, Inc. .................... 18,000 February 1996 The Flemington National Bank and Trust Company ...................... 15,600 March 1996 The Summit Bancorporation ................... 250,000 (includes Garden State Bancshares, Inc. and Crestmont Financial Corp.) December 1996 Central Jersey Financial Corporation ........ 23,000 March 1997 B.M.J. Financial Corp. ...................... 45,000 February 1997 Collective Bancorp, Inc. .................... 213,000 (announced) - --------------------------------------------------------------------------------------- 1.3 MILLION HOUSEHOLDS =======================================================================================
Acquisitions we pursue must support our line of business strategies in commercial, retail and mortgage banking as well as investment management and private banking. Cross-selling is Summit's culture, and for us success means focusing our efforts on intelligent cross-selling of products and services. Customer relationships must be fostered. By learning more about our customers, we can ensure that we are serving all their financial needs. Our people are consistently challenged to find creative solutions for their customers. Growth also comes from focusing on the continued development of niche markets, and this remains a key part of Summit's strategy. 14 17 [PICTURE: SUMMIT EMPLOYEES] [CAPTION: WHAT IS SUMMIT'S CUSTOMER GROWTH STRATEGY?] 15 18 [PICTURE: THE BOARD OF DIRECTORS] ROBERT G. COX ELINOR J. FERDON T. JOSEPH SEMROD T.J. DERMOT DUNPHY GEORGE L. MILES, JR., CPA HENRY S. PATTERSON II JAMES C. BRADY, JR. S. RODGERS BENJAMIN ANNE EVANS ESTABROOK JOSEPH M. TABAK DOUGLAS G. WATSON JOHN R. HOWELL ORIN R. SMITH RAYMOND SILVERSTEIN, CPA FRED G. HARVEY FRANCIS J. MERTZ ROBERT L. BOYLE THOMAS D. SAYLES, JR. JOHN G. COLLINS 16 19 [PICTURE: THE BOARD OF DIRECTORS] 1. ROBERT G. COX 2. ELINOR J. FERDON 3. T. JOSEPH SEMROD 4. T.J. DERMOT DUNPHY 5. GEORGE L. MILES, JR., CPA 6. HENRY S. PATTERSON II 7. JAMES C. BRADY, JR. 8. S. RODGERS BENJAMIN 9. ANNE EVANS ESTABROOK 10. JOSEPH M. TABAK 11. DOUGLAS G. WATSON 12. JOHN R. HOWELL 13. ORIN R. SMITH 14. RAYMOND SILVERSTEIN, CPA 15. FRED G. HARVEY 16. FRANCIS J. MERTZ 17. ROBERT L. BOYLE 18. THOMAS D. SAYLES, JR. 19. JOHN G. COLLINS BOARD OF DIRECTORS SUMMIT BANCORP S. RODGERS BENJAMIN Chairman and CEO Flemington Fur Company. Director since 1996. Former Director The Summit Bancorporation. Member Audit, Capital and Dividend Committees. ROBERT L. BOYLE Representative William H. Hintelmann Firm. Director since 1986. Publisher Emeritus of The Dispatch. Director Summit Bank. Member Executive, Compensation, Audit, Acquisition Committees. JAMES C. BRADY, JR. Partner Mill House Associates, L.P. Director since 1996. Former Director The Summit Bancorporation. Director Summit Bank. Member Executive, Compensation, Capital and Dividend Committees. JOHN G. COLLINS Vice Chairman Summit Bancorp. Director since 1986. Vice Chairman and Director Summit Bank. Member Capital and Dividend Committee. ROBERT G. COX President Summit Bancorp. Director since 1996. Former President, CEO and Director The Summit Bancorporation. President and Director Summit Bank. Member Executive and Acquisition Committees. T.J. DERMOT DUNPHY Chairman and CEO Sealed Air Corporation. Director since 1984. Director Summit Bank. Chair of Executive and Compensation Committees. Member Acquisition and Nominating Committees. ANNE EVANS ESTABROOK Owner Elberon Development Co. Director since 1994. Director Summit Bank. Member Executive, Compensation, Nominating, Capital and Dividend Committees. ELINOR J. FERDON Volunteer Professional and National President Girl Scouts of U.S.A. Director since 1984. Director Summit Bank. Chair of Audit Committee. Member Executive, Compensation, Capital and Dividend Committees. FRED G. HARVEY Vice President E&E Corporation. Director since 1988. Director Summit Bank, Pennsylvania. Chair of Capital and Dividend Committee. Member Audit and Nominating Committees. JOHN R. HOWELL Vice Chairman Summit Bancorp. Director since 1988. Chairman and CEO First Valley Corporation. Chairman, President, CEO and Director Summit Bank, Pennsylvania. Member Acquisition Committee. FRANCIS J. MERTZ President Fairleigh Dickinson University. Director since 1986. Director Summit Bank. Member Executive, Compensation, Audit, Capital and Dividend Committees. GEORGE L. MILES, JR., CPA President and CEO WQED Pittsburgh. Director since 1994. Director Summit Bank. Member Audit, Acquisition, Nominating Committees. HENRY S. PATTERSON II President E'town Corporation. Director since 1971. Director Summit Bank. Member Executive, Compensation, Audit, Acquisition, Capital and Dividend Committees. THOMAS D. SAYLES, JR. Former Chairman and Director The Summit Bancorporation. Director since 1996. Member Capital and Dividend Committee. T. JOSEPH SEMROD Chairman and CEO Summit Bancorp. Director since 1981. Chairman, CEO and Director Summit Bank. Member Executive Committee. RAYMOND SILVERSTEIN, CPA Consultant Alloy, Silverstein, Shapiro, Adams, Mulford & Co., P.C. Director since 1991. Director Summit Bank. Chair of Nominating Committee. Member Acquisition, Capital and Dividend Committees. ORIN R. SMITH Chairman and CEO Engelhard Corporation. Director since 1996. Former Director The Summit Bancorporation. Director Summit Bank. Member Executive, Compensation, Acquisition Committees. JOSEPH M. TABAK President and CEO JPC Enterprises, Inc. Director since 1987. Director Summit Bank. Chair of Acquisition Committee. Member Executive, Compensation, Nominating Committees. DOUGLAS G. WATSON President and CEO Novartis Corporation. Director since 1996. Former Director The Summit Bancorporation. Member Audit and Nominating Committees. 17 20 GLOSSARY OF TERMS [PICTURE: LEDGER BOOK AND ABACUS] BASIS POINT: A unit of measure for interest yields and rates equivalent to one one-hundredth of one percent. One hundred basis points equals one percent. BOOK VALUE: The value of a share of common stock determined by dividing total common shareholders' equity at the end of a period by the total number of common shares outstanding. DIVIDEND PAYOUT RATIO: Dividends per common share divided by net income per common share. EFFICIENCY RATIO: Non-interest expenses (excluding other real estate owned expenses and non-recurring items) divided by taxable-equivalent net interest income plus non-interest income (excluding net securities gains/losses). INTEREST-SENSITIVITY GAP: The amount by which interest-rate sensitive assets exceed interest-rate sensitive liabilities, and vice versa, for a designated time period. LEVERAGE RATIO: Tier I capital divided by the most recent quarterly total average assets less goodwill and other disallowed intangibles. NET CHARGE OFFS: The amount of loans written off as uncollectible net of any recoveries on loans previously written off as uncollectible. NET INCOME PER SHARE: Net income, less dividends on preferred stock, divided by the average number of common shares outstanding during the period. NET INTEREST INCOME: The difference between total interest income and total interest expense. NET INTEREST MARGIN: A measurement of net return on interest-earning assets. It is computed by dividing net interest income (tax-equivalent basis) by average interest-earning assets. NET INTEREST SPREAD: The difference between the yield on interest-earning assets (tax-equivalent basis) and the rate paid on interest-bearing liabilities. NON-PERFORMING LOANS: Loans on which interest accruals have been discontinued due to the borrower's financial difficulties. NON-RECURRING ITEMS: Income or charges that are not in the ordinary course of business. Non-recurring items generally include the cumulative effect of a change in accounting principle, restructuring charges and gains or losses on the sale of acquired assets. POOLING OF INTERESTS: An accounting method that restates historical financial information of the surviving company in a merger as if the two entities were always one. PURCHASE ACCOUNTING: An accounting method that adds the fair market value of assets and liabilities acquired to those of the acquiror at the time of acquisition. Historical financial information of the acquiror is not restated. RETURN ON AVERAGE ASSETS: A measure of profitability that indicates how effectively an institution utilized its assets. It is calculated by dividing net income by total average assets. RETURN ON AVERAGE COMMON EQUITY: A measure of profitability that indicates what an institution earned on its shareholders' investment. It is calculated by dividing net income less preferred stock dividends by total average common shareholders' equity. TAX-EQUIVALENT INCOME: Tax-exempt interest income which, for comparative purposes, has been increased by an amount equivalent to the Federal income taxes which would have been paid if this income were fully taxable at the Federal statutory rate. TIER I CAPITAL: Primarily consists of common shareholders' equity, qualifying preferred stock less goodwill and other disallowed intangibles. TIER II CAPITAL: Consists of qualifying subordinated debt instruments and a limited amount of the allowance for loan losses. TOTAL CAPITAL: The total of Tier I capital and Tier II capital. TREASURY STOCK: Common stock purchased and held by the issuing corporation to be reissued for corporate purposes. 18 21 Summit Bancorp and Subsidiaries FINANCIAL REVIEW BASIS OF PRESENTATION ================================================================================ On March 1, 1996, Summit Bancorp emerged from UJB Financial's acquisition of The Summit Bancorporation. The acquisition was accounted for as a pooling of interests and, therefore, all financial information includes the combined balances and results of operations for both entities. The Financial Review should be read in conjunction with the Consolidated Comparative Average Balance Sheets on pages 30 and 31, the Consolidated Financial Statements and Notes beginning on page 32, and the Consolidated Summary of Selected Financial Data on pages 52 and 53. Several acquisitions were completed by Summit Bancorp during 1996, which increased its presence in the markets it serves and supported balance sheet growth strategies. Since July 1995, the company completed four acquisitions that affect comparisons to prior year financial information. The purchase acquisition of Bancorp New Jersey, Inc. (Bancorp) was completed on July 11, 1995. The first quarter acquisitions of Garden State Bancshares, Inc. (Garden State) and The Flemington National Bank and Trust Company (Flemington) have been reflected in the financial statements from January 1, 1996. The purchase acquisition of Central Jersey Financial Corporation (Central Jersey) was completed on December 7, 1996. SUMMARY OF PERFORMANCE ================================================================================ For the year ended December 31, 1996, Summit Bancorp's net income was $229.2 million compared to $242.9 million earned in 1995, a decrease of 5.6%. On a per common share basis, net income decreased 11.9% to $2.44, compared to $2.77 the prior year. Net income for 1996 included non-recurring items of $110.7 million of restructuring charges and a one-time special assessment of $11.1 million. Restructuring charges were recorded for the acquisitions of The Summit Bancorporation, Flemington and Garden State and a supermarket branch initiative. The one-time special assessment was recorded in conjunction with legislation passed to recapitalize the Savings Association Insurance Fund (SAIF). For the year ended December 31, 1996, Summit Bancorp's operating earnings, before the non-recurring items, were $305.9 million compared to $242.9 million earned in 1995, an increase of 26.0%. On a per common share basis, operating earnings increased 17.7% to $3.26 compared to $2.77 the prior year. Summit Bancorp's performance for 1996 was highlighted by the successful integration of the acquisitions, realization of merger cost savings, and an improvement in asset quality ratios. These factors contributed to increases in key profitability measures. Before non-recurring items, return on average assets improved to 1.38% compared to 1.16% the previous year, and return on common equity rose to 16.61% versus 14.82% for 1995. Based on net income as reported, return on average assets and return on common equity for 1996 were 1.03% and 12.41%, respectively. In addition, the efficiency ratio improved to 53.39% for 1996 from 57.55% in 1995. The following chart illustrates the growth in net income before non-recurring items for the past five years. Net Income, Before and After Non-recurring Items (in millions) YEAR BEFORE AFTER ---- ------ ----- 1992 $90.28 $90.28 1993 136.72 133.14 1994 190.18 154.55 1995 242.87 242.87 1996 305.92 229.18 As a result of the company's internal and external growth strategies, earnings were enhanced with acquired and core loan growth. Average total loans increased $1.2 billion or 9.0% during 1996, with the residential mortgage and consumer loan portfolios contributing $999.1 million of this increase. Net interest income rose $42.3 million, or 4.9%, benefiting from loan growth, as well as an increased level of non-interest bearing deposits. In addition to the rise in net interest income, operating earnings benefited from higher non-interest income and lower non-interest expenses compared to the prior year. Non-interest income, including securities gains, rose $23.3 million or 10.4% to $247.5 million as a result of increased fee-based income on loans and deposits. Non-interest expenses, before non-recurring items, declined $16.2 million to $626.2 million as a result of merger savings and lower deposit insurance premiums. Continued improvement in asset quality ratios was evidenced by declines in non-performing loans and other real estate owned (OREO). During 1996, non-performing loans were reduced by $56.4 million, or 29.9%, to $132.1 million. Non-performing loans as a percentage of total loans declined to .89% at year-end 1996 from 1.34% at the prior year end. As a result of this improvement, the provision for loan losses was reduced to $62.0 million, a decline of $9.9 million, or 13.7%. 19 22 FINANCIAL CONDITION ================================================================================ INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES: Average interest-earning assets totaled $20.5 billion in 1996, an increase of $1.2 billion, or 6.2%, compared to 1995, reflecting an increase in loans due to strategic acquisitions and modest growth in securities. Average total loans increased $1.2 billion, or 9.0%, to average $14.6 billion. Average interest-bearing liabilities totaled $16.2 billion in 1996, an increase of $729.8 million, or 4.7%, compared to 1995. This increase was primarily attributable to growth in interest-bearing deposits of $617.0 million, due primarily to acquisitions, and a $191.7 million increase in other borrowed funds. The average tax-equivalent yield on total interest-earning assets amounted to 7.64%, a decrease of 21 basis points from 7.85% earned in 1995. This decline can be attributed to declining interest rates during the year and the competitive loan pricing environment. The average prime rate declined approximately 56 basis points to 8.27% in 1996 compared to 8.83% in 1995. The average cost of interest-bearing liabilities was 3.94% for 1996, an 11 basis point decrease from the 4.05% paid in 1995. Net interest spread was 3.70% for 1996 compared to 3.80% in 1995, a decline of 10 basis points. This decrease resulted as yields earned on interest-earning assets declined faster than the rates paid on interest-bearing liabilities, reflecting an increasingly competitive market for deposits. SECURITIES: Securities available for sale may be sold in response to changing market and interest rate conditions. These securities are reported at fair value with unrealized gains and losses, net of tax, included as a separate component of shareholders' equity. Securities available for sale averaged $2.5 billion during 1996 compared to $1.0 billion in 1995, an increase of $1.5 billion. The average balance for 1996 increased significantly from 1995 as a result of the one-time reclassification of $1.7 billion of securities held to maturity to securities available for sale at December 31, 1995. In November 1995, the Financial Accounting Standards Board (FASB) issued a special report on the implementation of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and permitted a one-time reclassification of securities as of a single measurement date between November 15, 1995, and December 31, 1995. This transfer was made based upon Summit Bancorp's reevaluation of its securities portfolios as a result of the special report. The available-for-sale portfolio consists primarily of U.S. Government and Federal agency securities and other securities, primarily corporate collateralized mortgage obligations (CMOs). During 1996, U.S. Government and Federal agency securities averaged $2.0 billion compared with $738.0 million in 1995. Other securities averaged $487.4 million during 1996 compared with $247.0 million in the prior year. In 1996, $135.6 million of securities available for sale were sold for a net gain of $4.2 million and maturities for the period amounted to $486.0 million. At December 31, 1996, there were net unrealized gains of $10.2 million on securities available for sale compared to $11.3 million at December 31, 1995. At December 31, 1996, the average estimated life of securities available for sale, adjusted for historical prepayment patterns on mortgage-backed securities, was 3 years. The average yield on this portfolio decreased 37 basis points to 6.22% in 1996 compared to 6.59% in 1995. Securities held to maturity are carried at amortized historical cost and consist of those securities for which there is a positive intent and ability to hold to maturity. Securities held to maturity averaged $3.3 billion during 1996, a decline of $1.4 billion, or 29.6%, from the 1995 average of $4.7 billion. This decline was primarily due to the one-time reclassification of $1.7 billion of securities to securities available for sale. At December 31, 1996, securities held to maturity totaled $3.2 billion, an increase of $170.3 million, or 5.6%, from the $3.0 billion at year-end 1995. The portfolio consists primarily of U.S. Government and Federal agency securities, which averaged $1.6 billion, and other securities, principally corporate CMOs, which averaged $1.4 billion. The average estimated life of securities held to maturity, adjusted for historical prepayment patterns on mortgage-backed securities, was 3 years and 3 months at December 31, 1996. The average yield on this portfolio declined 4 basis points during 1996 to 6.34% compared to 6.38% in 1995. 20 23 LOANS: ================================================================================ The following chart illustrates the growth in average total loans for the past five years. Total Average Loans (in billions) YEAR ---- 1992 $12.0439 1993 11.8895 1994 12.3876 1995 13.4165 1996 14.6213 Total loans averaged $14.6 billion during 1996, an increase of $1.2 billion, or 9.0%, compared to an average of $13.4 billion in 1995. This increase is primarily due to residential mortgage loans which grew $586.7 million and consumer loans which rose $412.4 million. The average yield on the total loan portfolio was 8.19% in 1996 compared to 8.48% in 1995, a decline of 29 basis points, reflecting the lower interest rate and competitive loan pricing environment. The commercial loan portfolio, which consists primarily of commercial and industrial (C & I) loans and construction and development loans, grew $45.4 million, or 0.9%, to average $5.3 billion for 1996. However, at December 31, 1996, commercial loans declined $54.4 million, or 1.0%, from the prior year end, resulting from several paydowns on large corporate credits during the fourth quarter. The average yield on the portfolio declined 42 basis points to 8.33% in 1996 from 8.75% the prior year. C & I loans totaled $4.8 billion at December 31, 1996, an increase of $44.0 million, or 0.9%, over 1995. This portfolio continued to mirror the business diversification of the region, with no industry concentrations greater than 10% of total C & I loans. Construction and development loans amounted to $471.4 million at December 31, 1996, a decline of $98.4 million, or 17.3%, compared to 1995. As the table below reports, construction and development loans have declined 57.6% over the last four years, resulting from managed reductions in the portfolio and transfers to permanent financing. Commercial mortgage loans averaged $2.4 billion for 1996, an increase of $160.3 million, or 7.2%, from 1995. At December 31, 1996, commercial mortgage loans totaled $2.3 billion. The average yield on commercial mortgage loans was 8.71% for 1996 compared to 8.97% for 1995, a decrease of 26 basis points. Residential mortgage loans averaged $3.6 billion, up $586.7 million, or 19.4%, from 1995. Most of the growth occurred in adjustable-rate loans, which are generally originated and retained in the portfolio. In addition, approximately $223.9 million of the increase in residential mortgage loans were from the acquisitions of Garden State, Flemington and Central Jersey. Mortgage loan originations totaled $911.9 million in 1996, compared to $912.7 million in 1995. Sales of loans in the secondary market, generally fixed-rate loans, were $373.9 million in 1996 compared to $124.8 million in 1995. Residential mortgage loans held for sale totaled $49.4 million at December 31, 1996, versus $68.8 million at year-end 1995. The average yield on residential mortgage loans was 7.41% for 1996 compared to 7.40% for 1995. Consumer loans averaged $3.3 billion for the year, an increase of $412.4 million, or 14.3%, from 1995. The growth in this portfolio occurred primarily in home equity loans. Home equity loans grew $257.7 million, or 13.5%, to total $2.2 billion at year-end 1996. These loans increased primarily as a result of successful promotions to attract retail customers at competitive rates. Automobile loans totaled $893.7 million as of December 31, 1996, an increase of $67.4 million, or 8.2%, over year-end 1995 and represented growth in both direct lending and leasing activity. The credit card portfolio, initiated in late 1995, grew $15.4 million during 1996, totaling $18.7 million at year end. The average yield on the consumer loan portfolio was 8.43%, a decrease of 30 basis points from the 8.73% earned in 1995. The following table presents the classification of the loan portfolio by major category at December 31 for each of the past five years. Total loans have grown $2.8 billion or 23.8% since December 31, 1992, primarily in residential mortgage and consumer loans.
LOANS (In thousands) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Commercial and industrial ........... $ 4,795,252 $ 4,751,227 $ 4,568,763 $ 3,971,082 $ 3,957,929 Construction and development ........ 471,413 569,820 785,595 973,279 1,112,655 - ------------------------------------------------------------------------------------------------------------------------------------ Commercial ........................ 5,266,665 5,321,047 5,354,358 4,944,361 5,070,584 Commercial mortgage ................. 2,313,610 2,315,384 2,201,698 2,381,630 2,312,332 Residential mortgage ................ 3,795,752 3,296,818 2,803,286 2,148,004 2,097,504 Consumer ............................ 3,443,568 3,086,325 2,745,837 2,407,431 2,491,633 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans ....................... $14,819,595 $14,019,574 $13,105,179 $11,881,426 $11,972,053 - ------------------------------------------------------------------------------------------------------------------------------------
21 24 DEPOSITS: During 1996, deposits continued to be impacted by investors' desire for higher-yielding investment alternatives such as mutual funds, annuities, and the stock market. Average total deposits were $18.1 billion for 1996 compared to $17.1 billion for 1995, an increase of $975.1 million, or 5.7%. The most significant growth occurred in demand deposits and time deposits. At December 31, 1996, total deposits were $18.4 billion, an increase of $419.9 million or 2.3% from year-end 1995. This increase in deposits was primarily due to acquisitions. The following chart illustrates the growth in average demand deposits for the past five years. Average Demand Deposits (in billions) YEAR ---- 1992 $2.6801 1993 3.0253 1994 3.3140 1995 3.3939 1996 3.7520 Average demand deposits were $3.8 billion for 1996, an increase of $358.1 million, or 10.6%, from the prior year. Demand deposit growth occurred primarily in business accounts. The increase in this interest-free source of funds was a contributing factor to the growth of net interest income. Savings deposits, which include interest bearing checking, money market and savings accounts, increased on average $181.1 million, or 2.3%, to average $8.0 billion during 1996. Money market accounts increased $183.8 million and interest bearing checking accounts increased $90.1 million, offset by a decline of $92.8 million in savings accounts. The average cost of these deposit products decreased 12 basis points to 2.52% in 1996 compared to 2.64% in 1995. Time deposits, which consist primarily of retail certificates of deposit, increased $263.6 million, or 5.0%, during 1996 to average $5.6 billion. The majority of the increase was in certificates of deposit with a term of one to two and one-half years. The average cost of time deposits decreased six basis points to 5.10% in 1996 from 5.16% in 1995. Commercial certificates of deposit $100,000 and over are a funding source to support growth in the loan portfolio and as an alternative to other sources of borrowed funds. These deposits averaged $803.9 million during 1996, an increase of $172.3 million, or 27.3%, compared to 1995. The cost of these deposits decreased by 36 basis points during the year to 5.35% compared with 5.71% in 1995, reflecting the lower interest rate environment. OTHER BORROWED FUNDS: Other borrowed funds include Federal funds purchased, repurchase agreements, short-term Federal Home Loan Bank borrowings, treasury tax and loan deposits, and other short-term borrowings. These borrowings provide an additional source of funds to support loan or investment securities growth. During 1996, other borrowed funds increased $191.7 million, or 15.6%, to average $1.4 billion. The average cost of other borrowed funds decreased 34 basis points during the year to 5.45% compared with 5.79% in 1995 due to the lower interest rate environment in 1996. Commercial paper, a funding source for certain non-bank subsidiaries, averaged $44.5 million during 1996, a decrease of $3.2 million, or 6.7%, from 1995. The average cost of commercial paper decreased 45 basis points to 5.25% in 1996 from 5.70% in 1995. LONG-TERM DEBT: Long-term debt averaged $423.9 million for 1996, a decrease of $75.7 million, or 15.2%, compared to 1995. This decline is due to maturities during the year. At year-end 1996, long-term debt totaled $690.0 million, an increase of $265.1 million, or 62.4%, compared to December 31, 1995. This increase was due to $300.2 million of long-term advances from the Federal Home Loan Bank in the fourth quarter of 1996. Certain long-term debt agreements contain limitations on the amount of additional funded debt that can be assumed. At December 31, 1996, under the most restrictive covenants, the amount of additional funded debt that could have been created was $553.4 million. Long-term debt totaling $224.5 million qualified as risk-based Tier II capital at December 31, 1996. For additional information on long-term debt, see Note 12 of the Notes to Consolidated Financial Statements. SHAREHOLDERS' EQUITY AND DIVIDENDS: Summit Bancorp has long had a policy of maintaining a strong capital position. The maintenance of a strong capital base promotes investor confidence and enhances the flexibility to capitalize on business growth and acquisition opportunities and to serve the needs of depositors and creditors. Shareholders' equity averaged $1.9 billion during 1996, an increase of $202.4 million, or 12.2%, compared to 1995. The ratio of average total equity to average total assets increased to 8.42% for 1996 compared to 7.97% for 1995. At December 31, 1996, book value per common share rose to $20.51, compared to $19.89 at the prior year end due primarily to retained net income offset by issuance of additional common shares in connection with certain acquisitions. 22 25 As a result of sustained earnings growth, the quarterly dividend paid on common stock was increased from $.32 per share to $.36 per share during the third quarter of 1996. Common stock dividends declared totaled $1.36 per share for 1996 compared to $1.19 for 1995, an increase of 14.3%. The market price of the common stock was $43.75 at December 31, 1996, compared to $35.63 the prior year end. The common stock of Summit Bancorp is traded on the New York Stock Exchange under the symbol SUB. The quarterly market price ranges and dividends declared per common share for the last two years are shown on page 57. On December 15, 1996, all outstanding shares of the Series B and Series C preferred stock were redeemed at $50.00 and $25.00, respectively. Both Series were retired upon redemption. In 1996 Summit Bancorp issued 6.7 million shares of common stock for the acquisitions of Garden State, Flemington and Central Jersey. Of the common shares issued for these acquisitions, 2.3 million shares were reissued treasury shares, which were specifically purchased in the open market during the third and fourth quarters for the Central Jersey acquisition. During 1995, Summit Bancorp issued 1.9 million shares of common stock for the purchase acquisition of Bancorp. Summit Bancorp and its bank subsidiaries are subject to various regulatory capital requirements administered by the Federal Reserve Board and Federal Deposit Insurance Corporation. For information on regulatory capital, see Note 20 of the Notes to Consolidated Financial Statements. Results of Operations ================================================================================ NET INTEREST INCOME: The accompanying Rate/Volume Table presents an analysis of the impact on interest income and interest expense resulting from changes in average volumes and rates over the past two years. Changes that are not due to volume or rate have been allocated proportionally to both, based on their relative absolute values. Interest income on a tax-equivalent basis was $1.6 billion, an increase of $51.5 million, or 3.4%, compared to 1995. This increase was primarily due to growth in interest-earning assets. On average, interest-earning assets increased $1.2 billion, principally in loans due to the strategic acquisitions. This growth contributed $94.9 million to interest income. Partially offsetting this was a $43.4 million decrease due to the decline in interest rates during 1996. The average yield on interest-earning assets was 7.64% for 1996 compared to 7.85% for 1995, a decrease of 21 basis points. Interest expense was $639.3 million for 1996, an increase of $12.9 million, or 2.1%, from a year ago. On average, interest-bearing liabilities increased $729.8 million, primarily due to interest bearing deposits from the acquisitions. Interest expense rose $34.6 million from the increase in interest-bearing liabilities. Partially offsetting this increase, interest expense declined $21.7 million as a result of the lower interest rate environment. The average cost of total interest-bearing liabilities was 3.94% in 1996, a decrease of 11 basis points from 4.05% in 1995. Net interest income on a tax-equivalent basis amounted to $925.1 million, an increase of $38.6 million, or 4.4%, from $886.5 million earned in 1995. Net interest spread declined 10
- ----------------------------------------------------------------------------------------------------------------------------------- Rate/Volume Table Amount of Increase (Decrease) ---------------------------------------------------------------------------- 1996 versus 1995 1995 versus 1994 ----------------------------------- ---------------------------------- Due to Change in: Due to Change in: --------------------- --------------------- (Tax-equivalent basis, in millions) Volume Rate Total Volume Rate Total - ----------------------------------------------------------------------------------------------------------------------------------- Interest Income Loans Commercial ................................ $ 4.0 $ (22.4) $ (18.4) $ 10.7 $ 59.5 $ 70.2 Commercial mortgage ....................... 14.1 (5.9) 8.2 (5.6) 16.1 10.5 Residential mortgage ...................... 43.4 .3 43.7 47.4 11.2 58.6 Consumer .................................. 34.9 (8.9) 26.0 26.4 15.8 42.2 - ----------------------------------------------------------------------------------------------------------------------------------- Total loans ............................. 96.4 (36.9) 59.5 78.9 102.6 181.5 Securities held to maturity ................. (88.5) (1.9) (90.4) 4.1 17.3 21.4 Securities available for sale ............... 90.9 (3.9) 87.0 (31.0) 14.3 (16.7) Other interest-earning assets ............... (3.9) (.7) (4.6) .3 4.2 4.5 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest income ................. 94.9 (43.4) 51.5 52.3 138.4 190.7 - ----------------------------------------------------------------------------------------------------------------------------------- Interest Expense Deposits Savings deposits .......................... 4.8 (9.2) (4.4) (12.8) 35.5 22.7 Time deposits ............................. 13.5 (3.2) 10.3 49.5 56.4 105.9 Commercial certificates of deposit $100,000 and over ....................... 9.5 (2.6) 6.9 8.2 9.0 17.2 - ----------------------------------------------------------------------------------------------------------------------------------- Total deposits .......................... 27.8 (15.0) 12.8 44.9 100.9 145.8 Other interest-bearing liabilities .......... 6.8 (6.7) .1 (20.3) 24.9 4.6 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest expense ................ 34.6 (21.7) 12.9 24.6 125.8 150.4 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income ........................... $ 60.3 $ (21.7) $ 38.6 $ 27.7 $ 12.6 $ 40.3 - -----------------------------------------------------------------------------------------------------------------------------------
23 26 basis points to 3.70% for the year compared to 3.80% earned in 1995. Net interest margin declined to 4.52% for 1996 compared to 4.60% in 1995. Both declines resulted as yields earned on interest-earning assets declined faster than the costs paid on interest-bearing liabilities, reflecting an increasingly competitive market for customer loans and deposits. The following chart illustrates the growth in tax-equivalent net interest income for the past five years. Net Interest Income (tax-equivalent basis, in millions) YEAR ---- 1992 $769.9 1993 801.1 1994 846.2 1995 886.5 1996 925.1 NON-INTEREST INCOME: Non-interest income, including securities gains, amounted to $247.5 million in 1996 compared to $224.2 million in the prior year, an increase of $23.3 million, or 10.4%. Excluding securities gains, non-interest income rose $26.7 million, or 12.4%. Non-interest income categories compared to the prior year are shown in the following table.
(Dollars in thousands) Increase (Decrease) - -------------------------------------------------------------------------------- 1996 1995 Amount Percent - -------------------------------------------------------------------------------- Service charges on deposit accounts ................ $ 98,949 $ 88,083 $ 10,866 12.3 Service and loan fee income 40,414 35,562 4,852 13.6 Trust income .............. 39,540 35,418 4,122 11.6 Trading account gains ..... 477 1,295 (818) (63.2) Other ..................... 62,866 55,225 7,641 13.8 - -------------------------------------------------------------------------------- 242,246 215,583 26,663 12.4 Securities gains .......... 5,217 8,606 (3,389) (39.4) - -------------------------------------------------------------------------------- $247,463 $224,189 $ 23,274 10.4 - --------------------------------------------------------------------------------
Service charges on deposit accounts amounted to $98.9 million in 1996, an increase of $10.9 million, or 12.3%. This increase resulted from the impact of Summit Bancorp's fee structure on acquired deposits and higher insufficient funds income from demand deposit accounts. Service and loan fee income increased $4.9 million, or 13.6%, to $40.4 million in 1996 primarily due to increases in fee income on merchant card processing and consumer debit cards. The increase in merchant processing fees was a result of a successful sales effort which led to an increase in processing volume. Also contributing was an increase in consumer debit card fees resulting from higher point-of-sale customer usage. Trust income of $39.5 million increased $4.1 million, or 11.6%, over the prior year. This increase is primarily due to an increase in fee income on proprietary mutual funds, third-party mutual fund commissions and investment advisory accounts. Assets under trust administration, including corporate debt issue trusteeships, totaled $23.2 billion at December 31, 1996. Assets under discretionary management were $6.9 billion at year-end 1996. These assets include the Pillar Funds(R), a family of bank sponsored mutual funds established in 1992, which totaled $1.6 billion at December 31, 1996. These funds increased $203.6 million, or 14.9%, from the prior year end. Other income amounted to $62.9 million, an increase of $7.6 million, or 13.8%, compared to the prior year. The increase was primarily due to new ATM access fees, effective in May 1996. For the year ended December 31, 1996, securities gains were $5.2 million, a decrease of $3.4 million, or 39.4%, below 1995. These gains were principally due to sales of equity securities. NON-INTEREST EXPENSES: Non-interest expenses totaled $747.9 million in 1996, an increase of $105.6 million, or 16.4%, compared to 1995. Impacting the comparison of 1996 non-interest expenses to the prior year are the Bancorp, Garden State, Flemington and Central Jersey acquisitions. Non-interest expenses for 1996 included restructuring charges totaling $110.7 million and a special one-time assessment for SAIF deposits of $11.1 million. Before these non-recurring items, non-interest expenses decreased $16.2 million, or 2.5%, compared to 1995 as a result of merger savings and a reduction in deposit insurance premiums. Non-interest expense categories compared to the prior year are shown in the following table.
(Dollars in thousands) Increase (Decrease) - ---------------------------------------------------------------------------------------- 1996 1995 Amount Percent - ---------------------------------------------------------------------------------------- Salaries .................... $245,507 $251,253 $(5,746) (2.3) Pension and other employee benefits .................. 80,873 85,297 (4,424) (5.2) Occupancy, net .............. 71,368 70,297 1,071 1.5 Furniture and equipment ..... 64,841 61,104 3,737 6.1 Communications .............. 30,029 26,155 3,874 14.8 Deposit insurance premiums .. 3,780 21,600 (17,820) (82.5) Other ....................... 129,778 126,655 3,123 2.5 - ---------------------------------------------------------------------------------------- 626,176 642,361 (16,185) (2.5) Savings Association Insurance Fund assessment ........... 11,059 -- 11,059 NM Restructuring charges ....... 110,700 -- 110,700 NM - ---------------------------------------------------------------------------------------- $747,935 $ 642,361 $ 105,574 16.4 - ----------------------------------------------------------------------------------------
NM-Not meaningful Salaries totaled $245.5 million in 1996, a decrease of $5.7 million, or 2.3%, compared to 1995. Total full-time equivalent employees at December 31, 1996 were 7,333 compared to 7,547 at December 31, 1995, a decrease of 2.8%. Pension and other 24 27 employee benefits expense totaled $80.9 million for the year ended December 31, 1996, and was $4.4 million, or 5.2%, lower than 1995. These expenses declined throughout 1996 as duplicate positions of the acquired entities were eliminated. During 1996, net occupancy expenses increased $1.1 million, or 1.5%, from the prior year. This increase was primarily due to the impact of the 1996 acquisitions offset by cost savings from branch closings and consolidations. Furniture and equipment expenses totaled $64.8 million, an increase of $3.7 million or 6.1% from 1995. This increase can also be attributed to the 1996 acquisitions and higher expenses associated with the automation of acquired banks and enhanced uses of technology. Communications expense totaled $30.0 million in 1996, an increase of $3.9 million, or 14.8%, compared to 1995. This increase was due in part to additional expenses associated with the upgrading of communication equipment and lines that support the branch automation network, other system improvements and an ATM network purchased in late 1995. As a result of rate changes in Bank Insurance Fund (BIF) and SAIF premiums, deposit insurance premiums declined $17.8 million, or 82.5%. BIF deposits, which make up approximately 88% of the insurable deposit base, were exempt from premiums in 1996. In addition, as a result of the one-time $11.1 million special assessment to recapitalize the SAIF on September 30, 1996, there were no SAIF premiums for the fourth quarter of 1996. Other expenses were $129.8 million in 1996, an increase of $3.1 million, or 2.5%, from 1995. This increase was due in part to an increase in miscellaneous operating expenses offset by a reduction in OREO expenses, reflecting a continued decline in OREO properties. For additional information, please see Note 16 to the Notes to Consolidated Financial Statements. INCOME TAXES: Federal and state income tax expenses for 1996 were $119.9 million compared to $136.3 million in 1995. The decrease was primarily due to lower pre-tax income, the reduction in valuation reserves and tax planning. The combined Federal and state effective income tax rate, which is income tax expense as a percentage of pre-tax income, was 34.3% for 1996 compared to 36.0% for 1995. ASSET QUALITY NON-PERFORMING LOANS: At December 31, 1996, non-performing loans totaled $132.1 million and represented .89% of total loans, compared to $188.5 million, or 1.34% of total loans, the prior year. Non-performing loans declined $56.4 million, or 29.9%, in 1996. The significant reduction in non-performing loans can be attributed to a stabilized real estate market and aggressive loan workout strategies. During 1996, there was a decline in the amount of loans transferred into non-performing, while payments received increased. In addition, there were several sales totaling $38.5 million of small-balance non-performing loans and resolutions of several large non-performing loans. The following chart illustrates the trend in non-performing loans for the past five years. Non-Performing Loans (in millions) YEAR ---- 1992 $458.5 1993 319.4 1994 200.2 1995 188.5 1996 132.1 At December 31, 1995, there were 16 non-performing loans greater than $2 million totaling $78.0 million, or approximately 41.5% of the non-performing loan portfolio. This compares with four loans greater than $2 million, totaling $31.0 million or approximately 23.5% of the portfolio at year-end 1996. The following table represents the composition of non-performing loans by type.
(Dollars in thousands) Increase (Decrease) - -------------------------------------------------------------------------------------- 1996 1995 Amount Percent - -------------------------------------------------------------------------------------- Commercial and industrial .. $ 54,308 $ 52,086 $ 2,222 4.3 Construction and development 31,901 52,975 (21,074) (39.8) Commercial mortgage ........ 45,877 83,427 (37,550) (45.0) - -------------------------------------------------------------------------------------- $132,086 $ 188,488 $(56,402) (29.9) - --------------------------------------------------------------------------------------
The following table illustrates the activity in non-performing loans over the past two years.
(In thousands) 1996 1995 - -------------------------------------------------------------------------------- Balance, beginning of year ................. $188,488 $200,205 Additions: From loan portfolio ...................... 172,765 223,502 Adjustment for acquisitions .............. 10,980 4,126 Transfer from OREO and assets held for accelerated disposition ............ 950 7,211 - -------------------------------------------------------------------------------- Total additions ........................ 184,695 234,839 - -------------------------------------------------------------------------------- Deductions: Payments received ........................ 133,017 102,253 Loan charge offs ......................... 69,097 75,736 Transfer to performing loans ............. 26,492 36,606 Transfer to other real estate owned ...... 12,491 29,496 Other .................................... -- 2,465 - -------------------------------------------------------------------------------- Total deductions ....................... 241,097 246,556 - -------------------------------------------------------------------------------- Balance, end of year ....................... $132,086 $188,488 - --------------------------------------------------------------------------------
25 28 Loans 90 days or more past due and not included in the non-performing loan category totaled $60.6 million at year-end 1996, compared to $47.8 million at the prior year end. These loans consist of residential mortgage and consumer loans which are generally well-secured and in the process of collection. Unsecured consumer loans included in this category are typically charged off after 120 days of delinquency. OTHER REAL ESTATE OWNED: OREO, net of a valuation allowance, amounted to $21.0 million at year end compared to $24.3 million the prior year, a decline of $3.3 million, or 13.6%. The following table illustrates the activity in OREO for the past two years.
(In thousands) 1996 1995 - -------------------------------------------------------------------------------- Balance, beginning of year ................... $ 37,539 $ 62,256 Additions: From non-performing loans .................. 12,491 29,496 From loan portfolio ........................ 8,910 6,965 Transfer from assets held for accelerated disposition .............................. 3,300 1,000 Adjustment from acquisitions ............... 3,534 1,064 - -------------------------------------------------------------------------------- Total additions .......................... 28,235 38,525 - -------------------------------------------------------------------------------- Deductions: Sales and other reductions ................. 36,267 53,007 Transfer to non-performing loans, gross .... -- 10,235 - -------------------------------------------------------------------------------- Total deductions ......................... 36,267 63,242 - -------------------------------------------------------------------------------- Balance, end of year ......................... 29,507 37,539 Less allowance for OREO .................... (8,528) (13,244) - -------------------------------------------------------------------------------- Balance, end of year, net .................... $ 20,979 $ 24,295 - --------------------------------------------------------------------------------
OREO is carried at the lower of cost or fair value less estimated costs to sell with any deficiency charged against the valuation allowance. At year-end 1996, the allowance totaled $8.5 million, compared to $13.2 million the prior year end. ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION: The allowance for loan losses at December 31, 1996 was $267.7 million compared to $279.0 million the prior year end, a decrease of $11.3 million, or 4.1%. The ratio of the allowance for loan losses to total loans was 1.81% at December 31, 1996 and 1.99% at year-end 1995. The allowance for loan losses as a percentage of non-performing loans was 202.7% at December 31, 1996 compared to 148.0% at the end of 1995. A standardized process has been established to assess the adequacy of the allowance for loan losses and to identify the risks inherent in the loan portfolio. This process incorporates credit reviews and gives consideration to areas of exposure such as concentrations of credit, economic and industry conditions, trends in delinquencies and collections, collateral coverage, and the composition of the performing and non-performing loan portfolios. When it is probable that, based on current information, the company will not collect all amounts due under contractual terms, the loan is considered impaired. A loan is also considered impaired if it is more than 90 days contractually past due. Under Summit Bancorp's credit and accounting policies, all impaired loans are defined as non-performing loans. Specific allocations, when required under SFAS No. 114, are identified by individual loan while general reserve percentages are identified by loan category or grade and allocated accordingly. All other loans not considered impaired, as defined, are graded and incorporated in the process of assessing the adequacy of the allowance for loan losses. The allowance is maintained at a level considered sufficient to absorb estimated losses in the loan portfolio. At year-end 1996, of the total $267.7 million loan loss allowance, approximately $19.5 million was identified for impaired loans, $115.0 million was allocated to specific categories or grades of loans not considered impaired as deemed necessary under the assessment process, and $133.2 million was considered a general unallocated reserve for the remaining inherent risk in the portfolio. The provision for loan losses was $62.0 million for the year, down $9.9 million, or 13.7%, from $71.9 million recorded in 1995. This decrease resulted from the improvement in asset quality ratios and the reduction in non-performing loans during 1996. Net charge offs of $81.8 million were recorded in 1996, a decrease of $22.5 million, or 21.5%, compared to $104.3 million recorded in 1995. These net charge offs represented .56% of average loans in 1996 compared to .78% of average loans in 1995. ASSET/LIABILITY MANAGEMENT ================================================================================ INTEREST SENSITIVITY: Interest rate sensitivity and the repricing characteristics of assets and liabilities are managed by the Asset/Liability Management Committee (ALCO). The principal objective of ALCO is to maximize net interest income within acceptable levels of risk established by policy. Interest rate risk is measured using financial modeling techniques, including stress tests, to measure the impact of changes in interest rates on future earnings. Net interest income, the primary source of earnings, is affected by interest rate movements. To mitigate the impact of changes in interest rates, a balance sheet must be structured so that repricing opportunities exist for both assets and liabilities in approximately equivalent amounts at basically the same time intervals. Imbalances in these repricing opportunities at any point in time constitute an interest-sensitivity gap, which is the difference between interest-sensitive assets and interest- sensitive liabilities. These static measurements do not reflect the results of any projected activity and are best used as early indicators of potential interest rate exposures. 26 29 As illustrated by the interest rate sensitivity analysis in the accompanying table, sensitivity to interest rate fluctuations is measured in a number of time frames. The gap position is presented on an adjusted basis allowing for the impact of off-balance-sheet transactions. An asset-sensitive gap means an excess of interest-sensitive assets over interest-sensitive liabilities, whereas a liability-sensitive gap means an excess of interest-sensitive liabilities over interest-sensitive assets. At December 31, 1996, there was a thirty-day liability-sensitive gap of $3.5 billion and a one-year cumulative liability-sensitive gap of $2.7 billion. In a rising rate environment, a liability-sensitive gap position generally indicates that increases in the cost of interest-bearing liabilities will outpace increases in income from interest-earning assets. This risk can be reduced by various strategies, including the administration of liability costs, asset maturities and use of off-balance-sheet financial instruments to insulate net interest income from the effects of changes in interest rates. These gap positions are also monitored through the use of simulation modeling techniques which apply alternative interest rate scenarios to periodic forecasts of future business activity and estimate the related impact on net interest income. The use of simulation modeling assists management in its continuing efforts to achieve earnings growth in varying interest rate environments. Asset and liability management efforts also involved the use of hedges, primarily interest rate swaps and interest rate floors, to modify the interest rate characteristics of designated assets and liabilities. These interest rate swaps and floors were accounted for as hedges and were not recorded on the balance sheet. Income or expense related to these instruments was accrued monthly and recognized as an adjustment to interest income or interest expense for those balance sheet instruments being hedged. Hedged transactions resulted in a reduction in net interest income of $2.0 million in 1996 compared to a $9.8 million reduction in 1995. The following table illustrates the aggregate notional amounts and expected maturities of interest rate swaps and interest rate floors at December 31, 1996.
Weighted Notional Avg. Est. (In millions) Amount Maturity - -------------------------------------------------------------------------------- Interest rate swaps: Receive fixed/pay floating .............. $ 161.3 8/98 Receive floating/pay fixed .............. 225.0 10/97 Interest rate floors ...................... 430.0 12/98 - -------------------------------------------------------------------------------- $ 816.3 7/98 - --------------------------------------------------------------------------------
The notional values of these instruments represent the contractual balances on which calculations of the amount of interest exchanged were based. A portion of the swaps were indexed amortizing swaps that were structured to contain an initial principal lockout period followed by a scheduled principal amortization period. The amortization speed was determined by a sliding percentage scale which used different amortization percentages for varying levels of London Interbank Offer Rate (LIBOR). The scheduled principal amortization speed is designed to increase or decrease in a manner similar to that of the hedged asset or liability. The actual lives of these agreements will move with the level of rates, but cannot exceed the maximum life contained in each agreement. At year-end 1996, the swap agreements had an average maximum remaining maturity of 17 months. The interest rate floors were purchased primarily to hedge LIBOR based assets. INTEREST RATE SENSITIVITY TABLE AS OF DECEMBER 31, 1996 (In thousands)
INTEREST SENSITIVITY PERIOD ------------------------------------------------------ 30 DAY 90 DAY 180 DAY 365 DAY - ----------------------------------------------------------------------------------------- Earning Assets: Total securities ................ $ 778,233 $ 422,695 $ 690,038 $ 1,037,404 Loans, net .................... 4,734,603 949,008 833,681 1,406,742 Other interest-earning assets . 135,968 -- -- -- - ----------------------------------------------------------------------------------------- 5,648,804 1,371,703 1,523,719 2,444,146 - ----------------------------------------------------------------------------------------- Sources of Funds: Savings and time deposits ..... 7,899,228 900,851 856,960 1,364,292 Commercial CDs ................ 423,507 131,120 30,876 25,314 Other interest-bearing liabilities ................. 813,726 212,305 92,393 341,406 Non-interest-bearing sources .. -- -- -- -- - ----------------------------------------------------------------------------------------- 9,136,461 1,244,276 980,229 1,731,012 - ----------------------------------------------------------------------------------------- Asset (Liability) Interval Gap .. (3,487,657) 127,427 543,490 713,134 Net effect of off-balance sheet instruments ................... 25,000 (391,313) -- (225,000) - ----------------------------------------------------------------------------------------- Asset (Liability) Sensitivity Gap Period gap .................... (3,462,657) (263,886) 543,490 488,134 Cumulative gap ................ $(3,462,657) $(3,726,543) $(3,183,053) $ (2,694,919) - ----------------------------------------------------------------------------------------- TOTAL ONE YEAR NON-INTEREST WITHIN TO SENSITIVE AND ONE YEAR TWO YEARS OVER TWO YEARS TOTAL - ----------------------------------------------------------------------------------------- Earning Assets: Total securities ................ $ 2,928,370 $ 798,610 $2,187,194 $ 5,914,174 Loans, net .................... 7,924,034 1,244,966 5,382,876 14,551,876 Other interest-earning assets . 135,968 -- -- 135,968 - ----------------------------------------------------------------------------------------- 10,988,372 2,043,576 7,570,070 20,602,018 - ----------------------------------------------------------------------------------------- Sources of Funds: Savings and time deposits ..... 11,021,331 951,560 1,806,912 13,779,803 Commercial CDs ................ 610,817 -- -- 610,817 Other interest-bearing liabilities ................. 1,459,830 45,959 522,922 2,028,711 Non-interest-bearing sources .. -- -- 4,182,687 4,182,687 - ----------------------------------------------------------------------------------------- 13,091,978 997,519 6,512,521 20,602,018 - ----------------------------------------------------------------------------------------- Asset (Liability) Interval Gap .. (2,103,606) 1,046,057 1,057,549 Net effect of off-balance sheet instruments ................... (591,313) -- 591,313 - ----------------------------------------------------------------------------------------- Asset (Liability) Sensitivity Gap Period gap .................... (2,694,919) 1,046,057 1,648,862 Cumulative gap ................ $ (2,694,919) (1,648,862) $ -- - -----------------------------------------------------------------------------------------
27 30 The following table illustrates the interest rate swap activity for the past two years.
(In millions) 1996 1995 - -------------------------------------------------------------------------------- Balance, beginning of year ............ $ 967.5 $1,063.5 Additions ........................... 225.0 40.0 Maturities/amortizations ............ (673.6) (136.0) Terminations ........................ (132.6) -- - -------------------------------------------------------------------------------- Balance, end of year .................. $ 386.3 $ 967.5 - --------------------------------------------------------------------------------
During 1996, interest rate swaps with a remaining notional value of $132.6 million were terminated for $.6 million. These termination costs are being amortized over the remaining lives of the related hedged assets or liabilities. At December 31, 1996, the remaining unamortized termination costs were $1.6 million with amortization periods ranging from 5 to 31 months. For additional information on the use of derivative financial instruments, see Notes 18 and 19 of the Notes to Consolidated Financial Statements. LIQUIDITY: Bank liquidity is the ability to support asset growth while satisfying the borrowing needs and deposit withdrawal requirements of customers. Traditional sources of liquidity include asset maturities, asset repayments, and deposit growth. Purchased liabilities such as commercial certificates of deposit, Federal funds purchased and securities sold under agreements to repurchase represent other major sources of funding. In addition, the bank subsidiaries have established borrowing relationships with the Federal Home Loan Bank and other correspondent banks which further support and enhance liquidity. A base of low-cost demand and retail deposits, which is the cornerstone of liquidity, is managed through an extensive branch network. Total demand and retail deposits amounted to $17.8 billion at December 31, 1996, compared to $17.2 billion at year-end 1995. Liquidity is also important at the Parent Corporation in order to provide funds for operations and to pay dividends to shareholders. Parent Corporation cash requirements are met primarily through management fees and dividends from its subsidiaries and the issuance of short- and long-term debt. The amount of dividends from bank subsidiaries is subject to certain regulatory restrictions as detailed in Note 20 of the Notes to Consolidated Financial Statements. Commercial paper issued by the Parent Corporation is primarily a funding source for certain non-bank subsidiaries. These funds averaged $44.5 million during the year, compared to the 1995 average of $47.7 million. At December 31, 1996, commercial paper totaled $40.5 million. At year-end 1996, there were $38.0 million of short-term lines of credit available to support commercial paper borrowings and for general corporate purposes. Liquidity management is a function of ALCO and includes monitoring current and projected cash flows, as well as economic forecasts for the industry. A liquidity contingency plan, which is designed to manage potential liquidity concerns due to changes in interest rates, credit markets, and other external risks, is also in place. The Consolidated Statements of Cash Flows present the change in cash from operating, investing, and financing activities. Cash decreased by $110.8 million during 1996. Net cash provided by operating activities totaled $324.0 million. This amount was primarily due to results of operations adjusted for: provisions for loan losses and OREO, depreciation, amortization and accretion, originations of mortgages held for sale, and proceeds from the sales of mortgages held for sale. Net cash used in investing activities totaled $237.6 million and was primarily the result of loan and securities activity. Net cash used in financing activities totaled $197.2 million, reflecting dividends paid, the redemption of preferred stock and the purchase of common stock specifically for the Central Jersey acquisition, in addition to decreases in deposits partially offset by increases in short-term borrowings and long-term debt. The combined securities portfolio is also a source of liquidity, as portfolio assets provide cash flows through maturities and periodic repayments of principal. During 1996, proceeds from maturities and other cash flows in the combined securities portfolios were $1.2 billion, while proceeds from the sales of securities available for sale were $139.8 million. Cash flows from the securities portfolios were primarily used to fund loan growth. Total scheduled maturities of interest bearing deposits with banks plus maturities and anticipated principal repayments of the combined securities portfolios are expected to approximate $1.1 billion during 1997. In addition, all or part of the $2.7 billion of securities available for sale could be sold to provide additional liquidity. At December 31, 1996, the average duration of securities held to maturity and securities available for sale, adjusted for historical prepayment patterns on mortgage-backed securities, was estimated to be approximately 2.2 years and 1.4 years, respectively. RESULTS OF OPERATIONS - 1995 COMPARED TO 1994 ================================================================================ Total earnings in 1995 amounted to $242.9 million or $2.77 per share compared to $154.6 million or $1.80 per share for 1994. Improved earnings were primarily the result of growth in net interest income, a lower provision for loan losses, and a reduction in non-interest expenses. As a result of sustained earnings and capital growth, the quarterly dividend paid on common stock was increased twice during 1995 to an annualized dividend rate of $1.28 per share compared to a $1.04 dividend rate at year-end 1994. Also, during 1995 key performance ratios showed significant improvement. Return on average assets increased 40 basis points from 1994 to 1.16%, while return on common equity rose to 14.82% versus 10.37% for 1994. In addition, the efficiency ratio improved to 57.55% for 1995 from 59.71% in 1994. Interest income on a tax-equivalent basis was $1.5 billion, an increase of $190.7 million, or 14.4%, compared to 1994. This increase was primarily due to the impact of higher interest rates in early 1995 on the loan and securities portfolios. The average yield on interest earning assets was 7.85% for 1995 compared to 7.09% for 1994, an increase of 76 basis points. 28 31 Interest expense was $626.4 million for 1995, an increase of $150.4 million, or 31.6%, from a year ago. The increase is primarily the result of the higher rates paid for deposits and other borrowed funds. The average cost of total interest-bearing liabilities was 4.05% in 1995, an increase of 91 basis points from 3.14% in 1994. Net interest income on a tax-equivalent basis amounted to $886.5 million, an increase of $40.3 million, or 4.8%, from $846.2 million earned in 1994. This increase was primarily from higher levels of net interest-earning assets over the prior year. Net interest spread on a tax-equivalent basis declined 15 basis points to 3.80% for the year compared to 3.95% earned in 1994. Net interest margin rose slightly to 4.60% for 1995 compared to 4.53% in 1994, as the growth in net interest income outpaced the growth in average interest-earning assets. Excluding securities gains, non-interest income rose $7.7 million, or 3.7%, from 1994. Service charges on deposit accounts amounted to $88.1 million in 1995, an increase of $5.1 million, or 6.1%. Service and loan fee income decreased $1.5 million, or 3.9%, to $35.6 million in 1995. Trust income of $35.4 million increased $1.8 million, or 5.2%, over the prior year. Other income amounted to $55.2 million, an increase of $1.9 million, or 3.6%, compared to the prior year. For the year ended December 31, 1995, securities gains were $8.6 million, an increase of $6.4 million over 1994. Non-interest expenses totaled $642.4 million in 1995, a decrease of $57.3 million, or 8.2%, compared to 1994. Excluding the restructuring charge and the loss on sale of assets taken in 1994, non-interest expenses decreased $8.3 million, or 1.3%, in 1995. Salaries expense totaled $251.3 million in 1995, an increase of $6.3 million, or 2.6%, compared to 1994. Pension and other employee benefits expense totaled $85.3 million for the year ended December 31, 1995, and was $7.4 million, or 9.5%, greater than 1994. Furniture and equipment expenses amounted to $61.1 million, an increase of $2.5 million, or 4.3%, from $58.6 million in 1994. Communications expense was $26.2 million for 1995, an increase of $1.3 million, or 5.1%, from 1994. Deposit insurance premiums of $21.6 million represented a decline of $16.4 million, or 43.1%, from 1994, which reflected the reduction in premium rates on BIF deposits effective June 1995. During 1994, a restructuring charge of $13.6 million was recorded in conjunction with the Crestmont Financial Corp. (Crestmont) acquisition. In addition, other expenses for 1995 were $126.7 million, a decrease of $45.6 million, or 26.5%, from 1994. Included were declines of $13.2 million in OREO expenses and $35.4 million due to the loss on the sale of certain non-performing loans and OREO acquired from Crestmont. Federal and state income tax expenses for 1995 were $136.3 million compared to $89.0 million in 1994. The increase was primarily the result of higher pre-tax income. RECENT ACCOUNTING PRONOUNCEMENTS ================================================================================ IN June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS No. 125 provides consistent standards for distinguishing transfers of financial assets that are sales from transactions that are secured borrowings. SFAS No. 125 is effective for transfers occurring after December 31, 1996. In December 1996 the FASB issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125, an Amendment of FASB Statement No. 125." The adoption of SFAS Nos. 125 and 127 is not expected to have a material effect on Summit Bancorp's future financial condition or results of operations. REACHING HIGHER - LOOKING AHEAD ================================================================================ One of Summit Bancorp's primary objectives is to achieve balanced asset and revenue growth, and at the same time expand market presence and diversify the line of financial products. However, it is recognized that objectives, no matter how focused, are subject to factors beyond the control of Summit Bancorp which can impede the ability to achieve these goals. The following are some factors that should be considered when evaluating Summit Bancorp's ability to achieve its objectives: The financial market place is rapidly changing. Over the last several decades, the banking industry has lost market share to other financial service providers. Banks are no longer the only place to obtain loans, nor the only place to keep financial assets. The future is predicated on Summit Bancorp's ability to adapt product lines, provide superior customer service and compete in an ever-changing marketplace. Net interest income, the primary source of earnings, is impacted favorably or unfavorably by changes in interest rates. Although the impact of interest rate fluctuations is mitigated by ALCO strategies, significant changes in interest rates can have an adverse impact on profitability. The ability of customers to repay their obligations is often impacted by changes in the regional and national economy. Although Summit Bancorp regularly sets aside loan loss provisions toward the allowance for loan losses in amounts intended to be sufficient to absorb foreseeable credit losses, significant unfavorable changes in the economy could severely impact the assumptions used in the determination of the adequacy of the allowance. Technological changes will have a material impact on how financial service companies compete for and deliver services. It is recognized that these changes will have a direct impact on how the marketplace is approached and ultimately on profitability. Summit Bancorp has already taken steps to reduce reliance on traditional delivery channels. However, continued success will be measured by the ability to react immediately to future technological changes. 32 Summit Bancorp and Subsidiaries CONSOLIDATED COMPARATIVE AVERAGE BALANCE SHEETS WITH RESULTANT INTEREST AND RATES
(Tax-equivalent basis, dollars in millions, not covered by independent auditors' report) 1996 Average Average Balance Interest Rate - -------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Federal funds sold and securities purchased under agreements to resell ....................................................... $ 49.1 $ 2.9 5.90% Interest-bearing deposits with banks ......................................... 14.3 .8 5.74 Trading account securities ................................................... 27.5 1.5 5.44 Securities available for sale: U.S. Government and Federal agencies ....................................... 1,956.7 122.6 6.27 States and political subdivisions .......................................... 6.4 .4 6.66 Other securities ........................................................... 487.4 29.5 6.04 - -------------------------------------------------------------------------------------------------------------------------- Total securities available for sale ...................................... 2,450.5 152.5 6.22 - -------------------------------------------------------------------------------------------------------------------------- Securities held to maturity: U.S. Government and Federal agencies ....................................... 1,607.2 99.6 6.20 States and political subdivisions .......................................... 255.8 23.3 9.11 Other securities ........................................................... 1,443.7 86.6 6.00 - -------------------------------------------------------------------------------------------------------------------------- Total securities held to maturity ........................................ 3,306.7 209.5 6.34 - -------------------------------------------------------------------------------------------------------------------------- Loans: Commercial ................................................................. 5,331.4 444.3 8.33 Commercial mortgage ........................................................ 2,392.6 208.4 8.71 Residential mortgage ....................................................... 3,608.2 267.3 7.41 Consumer ................................................................... 3,289.1 277.2 8.43 - -------------------------------------------------------------------------------------------------------------------------- Total loans .............................................................. 14,621.3 1,197.2 8.19 - -------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets ............................................ 20,469.4 1,564.4 7.64 - -------------------------------------------------------------------------------------------------------------------------- Cash and due from banks ........................................................ 1,198.5 Allowance for loan losses ...................................................... (284.9) Other assets ................................................................... 796.9 - -------------------------------------------------------------------------------------------------------------------------- Total Assets ................................................................... $22,179.9 ========================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits ............................................................. $ 7,954.8 200.8 2.52 Time deposits ................................................................ 5,561.8 283.7 5.10 Commercial certificates of deposit $100,000 and over ......................... 803.9 43.0 5.35 - -------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits .......................................... 14,320.5 527.5 3.68 - -------------------------------------------------------------------------------------------------------------------------- Commercial paper ............................................................. 44.5 2.3 5.25 Other borrowed funds ......................................................... 1,423.7 77.7 5.45 Long-term debt ............................................................... 423.9 31.8 7.50 - -------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities ....................................... 16,212.6 639.3 3.94 - -------------------------------------------------------------------------------------------------------------------------- Demand deposits ................................................................ 3,752.0 Other liabilities .............................................................. 348.6 Shareholders' equity ........................................................... 1,866.7 - -------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ..................................... $22,179.9 ========================================================================================================================== Net interest income (tax-equivalent basis) 925.1 3.70% Tax-equivalent basis adjustment (13.6) - -------------------------------------------------------------------------------------------------------------------------- Net interest income $ 911.5 ========================================================================================================================== Net interest income as a percent of interest-earning assets (tax-equivalent basis) 4.52% ==========================================================================================================================
1995 Average Average Balance Interest Rate - ---------------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Federal funds sold and securities purchased under agreements to resell .......................................... $ 112.9 $ 7.1 6.31% Interest-bearing deposits with banks ............................ 11.1 .6 5.81 Trading account securities ...................................... 34.8 2.1 5.89 Securities available for sale: U.S. Government and Federal agencies .......................... 738.0 48.7 6.60 States and political subdivisions ............................. 9.3 .6 6.89 Other securities .............................................. 247.0 16.2 6.56 - ---------------------------------------------------------------------------------------------------------------- Total securities available for sale ......................... 994.3 65.5 6.59 - ---------------------------------------------------------------------------------------------------------------- Securities held to maturity: U.S. Government and Federal agencies .......................... 2,445.5 151.4 6.19 States and political subdivisions ............................. 323.5 31.4 9.69 Other securities .............................................. 1,929.4 117.1 6.07 - ---------------------------------------------------------------------------------------------------------------- Total securities held to maturity ........................... 4,698.4 299.9 6.38 - ---------------------------------------------------------------------------------------------------------------- Loans: Commercial .................................................... 5,286.0 462.7 8.75 Commercial mortgage ........................................... 2,232.3 200.2 8.97 Residential mortgage .......................................... 3,021.5 223.6 7.40 Consumer ...................................................... 2,876.7 251.2 8.73 - ---------------------------------------------------------------------------------------------------------------- Total loans ................................................. 13,416.5 1,137.7 8.48 - ---------------------------------------------------------------------------------------------------------------- Total interest-earning assets ............................... 19,268.0 1,512.9 7.85 - ---------------------------------------------------------------------------------------------------------------- Cash and due from banks ........................................... 1,079.2 Allowance for loan losses ......................................... (299.9) Other assets ...................................................... 822.8 - ---------------------------------------------------------------------------------------------------------------- Total Assets ...................................................... $20,870.1 ================================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits ................................................ $ 7,773.7 205.2 2.64 Time deposits ................................................... 5,298.2 273.4 5.16 Commercial certificates of deposit $100,000 and over ............ 631.6 36.1 5.71 - ---------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits ............................. 13,703.5 514.7 3.76 - ---------------------------------------------------------------------------------------------------------------- Commercial paper ................................................ 47.7 2.7 5.70 Other borrowed funds ............................................ 1,232.0 71.4 5.79 Long-term debt .................................................. 499.6 37.6 7.52 - ---------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities .......................... 15,482.8 626.4 4.05 - ---------------------------------------------------------------------------------------------------------------- Demand deposits ................................................... 3,393.9 Other liabilities ................................................. 329.1 Shareholders' equity .............................................. 1,664.3 - ---------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ........................ $20,870.1 ================================================================================================================ Net interest income (tax-equivalent basis) 886.5 3.80% Tax-equivalent basis adjustment (17.3) - ---------------------------------------------------------------------------------------------------------------- Net interest income $ 869.2 ================================================================================================================ Net interest income as a percent of interest-earning assets (tax-equivalent basis) 4.60% ================================================================================================================
Notes: Average loan balances and rates include non-accruing loans. The tax-equivalent basis adjustment was computed based on a Federal income tax rate of 35% for 1996 through 1993 and 34% for 1992 and 1991. 30 33
1994 1993 Average Average Average Average Balance Interest Rate Balance Interest Rate - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Interest-earning assets: Federal funds sold and securities purchased under agreements to resell ................................. $ 103.2 $ 3.8 3.73% $ 231.9 $ 7.1 3.08% Interest-bearing deposits with banks ................... 16.9 .6 3.72 21.9 .7 2.98 Trading account securities ............................. 28.9 .9 2.94 32.7 1.5 4.44 Securities available for sale: U.S. Government and Federal agencies ................. 442.3 25.2 5.71 410.2 17.1 4.16 States and political subdivisions .................... 536.2 30.6 5.70 272.0 14.7 5.39 Other securities ..................................... 514.9 26.4 5.13 464.1 21.4 4.62 - ------------------------------------------------------------------------------------------------------------------------------------ Total securities available for sale ................ 1,493.4 82.2 5.50 1,146.3 53.2 4.64 - ------------------------------------------------------------------------------------------------------------------------------------ Securities held to maturity: U.S. Government and Federal agencies ................. 2,378.4 136.2 5.72 2,898.5 189.8 6.55 States and political subdivisions .................... 381.5 38.1 9.99 403.1 42.8 10.62 Other securities ..................................... 1,869.5 104.2 5.57 947.6 53.9 5.69 - ------------------------------------------------------------------------------------------------------------------------------------ Total securities held to maturity .................. 4,629.4 278.5 6.01 4,249.2 286.5 6.74 - ------------------------------------------------------------------------------------------------------------------------------------ Loans: Commercial .............................................. 5,148.0 392.5 7.62 5,008.1 352.8 7.04 Commercial mortgage ..................................... 2,299.3 189.7 8.25 2,338.4 189.7 8.11 Residential mortgage .................................... 2,372.6 165.0 6.95 2,083.5 162.9 7.82 Consumer ................................................ 2,567.7 209.0 8.14 2,459.5 203.5 8.27 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans ........................................... 12,387.6 956.2 7.72 11,889.5 908.9 7.64 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-earning assets ......................... 18,659.4 1,322.2 7.09 17,571.5 1,257.9 7.16 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and due from banks ................................... 1,130.2 1,073.4 Allowance for loan losses ................................. (342.0) (359.5) Other assets .............................................. 810.6 830.2 - ------------------------------------------------------------------------------------------------------------------------------------ Total Assets .............................................. $20,258.2 $19,115.6 ==================================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits ....................................... $ 8,327.5 182.5 2.19 $ 7,997.5 184.4 2.31 Time deposits .......................................... 4,205.2 167.5 3.98 4,758.3 200.0 4.20 Commercial certificates of deposit $100,000 and over ... 460.1 18.9 4.10 324.5 9.4 2.89 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits .................... 12,992.8 368.9 2.84 13,080.3 393.8 3.01 - ------------------------------------------------------------------------------------------------------------------------------------ Commercial paper ....................................... 46.5 1.9 4.06 58.9 1.7 2.95 Other borrowed funds ................................... 1,624.6 70.3 4.33 922.7 32.7 3.55 Long-term debt ......................................... 479.5 34.9 7.28 370.6 28.6 7.71 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities ................. 15,143.4 476.0 3.14 14,432.5 456.8 3.17 - ------------------------------------------------------------------------------------------------------------------------------------ Demand deposits .......................................... 3,314.0 3.025.3 Other liabilities ........................................ 289.3 244.3 Shareholders' equity ..................................... 1,511.5 1,413.5 - ------------------------------------------------------------------------------------------------------------------------------------ Total Liabilities and Shareholders' Equity ............... $20,258.2 $19,115.6 ==================================================================================================================================== Net interest income (tax-equivalent basis) ................ 846.2 3.95% 801.1 3.99% Tax-equivalent basis adjustment .......................... (19.4) (21.2) - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income ...................................... $ 826.8 $ 779.9 ==================================================================================================================================== Net interest income as a percent of interest-earning assets (tax-equivalent basis) 4.53% 4.56% ====================================================================================================================================
1992 1991 Average Average Average Average Balance Interest Rate Balance Interest Rate - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Federal funds sold and securities purchased under agreements to resell ................................. $ 287.0 $ 11.1 3.86% $ 526.9 $ 31.5 5.98% Interest-bearing deposits with banks ................... 18.7 .7 3.70 34.7 2.3 6.58 Trading account securities ............................. 23.9 1.5 6.26 14.5 1.3 9.16 Securities available for sale: U.S. Government and Federal agencies ................. 120.5 10.3 8.54 22.4 2.1 9.32 States and political subdivisions .................... -- -- -- 5.0 .8 15.43 Other securities ..................................... 6.3 .5 7.75 7.8 .6 8.29 - --------------------------------------------------------------------------------------------------------------------------------- Total securities available for sale ................ 126.8 10.8 8.50 35.2 3.5 9.97 - --------------------------------------------------------------------------------------------------------------------------------- Securities held to maturity: U.S. Government and Federal agencies ................. 3,781.9 276.5 7.31 3,067.7 268.5 8.75 States and political subdivisions .................... 498.2 51.5 10.34 581.6 61.5 10.58 Other securities ..................................... 486.1 31.9 6.57 701.1 60.1 8.57 - --------------------------------------------------------------------------------------------------------------------------------- Total securities held to maturity .................. 4,766.2 359.9 7.55 4,350.4 390.1 8.97 - --------------------------------------------------------------------------------------------------------------------------------- Loans: Commercial .............................................. 5,249.9 381.1 7.26 5,542.7 494.9 8.93 Commercial mortgage ..................................... 2,265.7 199.3 8.80 2,055.1 203.7 9.91 Residential mortgage .................................... 2,025.9 178.4 8.81 2,098.9 204.0 9.72 Consumer ................................................ 2,502.4 221.9 8.87 2,477.5 259.0 10.45 - --------------------------------------------------------------------------------------------------------------------------------- Total loans ............................................ 12,043.9 980.7 8.14 12,174.2 1,161.6 9.54 - --------------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets .......................... 17,266.5 1,364.7 7.90 17,135.9 1,590.3 9.28 - --------------------------------------------------------------------------------------------------------------------------------- Cash and due from banks ................................... 974.6 865.7 Allowance for loan losses ................................. (401.6) (397.2) Other assets .............................................. 858.2 840.0 - --------------------------------------------------------------------------------------------------------------------------------- Total Assets .............................................. $18,697.7 $18,444.4 ================================================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits ...................................... $ 7,246.3 226.7 3.13 $ 6,034.0 300.0 4.97 Time deposits ......................................... 5,417.6 282.1 5.21 5,785.1 399.4 6.90 Commercial certificates of deposit $100,000 and over .. 517.0 20.2 3.91 1,000.0 61.4 6.14 - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits ................... 13,180.9 529.0 4.01 12,819.1 760.8 5.94 - --------------------------------------------------------------------------------------------------------------------------------- Commercial paper ...................................... 94.3 3.4 3.61 167.4 10.2 6.10 Other borrowed funds .................................. 1,027.0 38.3 3.73 1,417.1 82.3 5.80 Long-term debt ........................................ 248.7 24.1 9.68 303.6 29.3 9.66 - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities ................ 14,550.9 594.8 4.09 14,707.2 882.6 6.00 - --------------------------------------------------------------------------------------------------------------------------------- Demand deposits ......................................... 2,680.1 2,347.7 Other liabilities ....................................... 209.1 227.7 Shareholders' equity .................................... 1,257.6 1,161.8 - --------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity .............. $18,697.7 $18,444.4 ================================================================================================================================= Net interest income (tax-equivalent basis) .............. 769.9 3.81% 707.7 3.28% Tax-equivalent basis adjustment ......................... (23.2) (27.9) - --------------------------------------------------------------------------------------------------------------------------------- Net interest income ..................................... $ 746.7 $ 679.8 ================================================================================================================================= Net interest income as a percent of interest-earning assets (tax-equivalent basis) 4.46% 4.13% =================================================================================================================================
31 34 Summit Bancorp and Subsidiaries CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
December 31, - ------------------------------------------------------------------------------------------------------------------------------ 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks ................................................................ $ 1,256,684 $ 1,337,718 Federal funds sold and securities purchased under agreements to resell ................. 111,143 161,650 Interest bearing deposits with banks ................................................... 24,825 18,329 Securities: Trading account securities ........................................................... 26,376 28,637 Securities available for sale ........................................................ 2,670,414 2,408,065 Securities held to maturity (fair value of $3,198,347 in 1996 and $3,040,826 in 1995) ............................................................ 3,217,384 3,047,080 - ------------------------------------------------------------------------------------------------------------------------------ Total securities ................................................................. 5,914,174 5,483,782 - ------------------------------------------------------------------------------------------------------------------------------ Loans .................................................................................. 14,819,595 14,019,574 Less: Allowance for loan losses ...................................................... 267,719 279,034 - ------------------------------------------------------------------------------------------------------------------------------ Net loans ........................................................................ 14,551,876 13,740,540 - ------------------------------------------------------------------------------------------------------------------------------ Premises and equipment ................................................................. 204,953 206,691 Accrued interest receivable ............................................................ 140,368 132,441 Due from customers on acceptances ...................................................... 15,671 26,740 Other assets ........................................................................... 448,318 429,044 - ------------------------------------------------------------------------------------------------------------------------------ Total Assets ........................................................................... $22,668,012 $21,536,935 ============================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest bearing demand deposits ................................................. $ 3,984,366 $ 3,873,801 Interest bearing deposits: Savings and time deposits .......................................................... 13,779,803 13,373,864 Commercial certificates of deposit $100,000 and over ............................... 610,817 707,438 - ------------------------------------------------------------------------------------------------------------------------------ Total deposits ................................................................... 18,374,986 17,955,103 - ------------------------------------------------------------------------------------------------------------------------------ Other borrowed funds ................................................................... 1,338,734 1,042,556 Accrued expenses and other liabilities ................................................. 271,510 239,791 Accrued interest payable ............................................................... 50,261 45,567 Bank acceptances outstanding ........................................................... 15,671 26,740 Long-term debt ......................................................................... 689,977 424,862 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities ................................................................ 20,741,139 19,734,619 - ------------------------------------------------------------------------------------------------------------------------------ Shareholders' equity: Preferred stock: Series B: Authorized 1,200,000 shares, issued and outstanding 600,166 shares in 1995 -- 30,008 Series C: Authorized, issued and outstanding 504,481 shares in 1995 -- 12,612 Common stock par value $1.20: Authorized 130,000,000 shares; issued and outstanding 93,962,565 in 1996 and 88,471,028 in 1995 ............................................................... 112,755 106,165 Surplus .............................................................................. 881,483 826,788 Retained earnings .................................................................... 927,672 821,579 Net unrealized gain on securities, net of tax ........................................ 4,963 5,164 - ------------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity ....................................................... 1,926,873 1,802,316 - ------------------------------------------------------------------------------------------------------------------------------ Total Liabilities and Shareholders' Equity ............................................. $22,668,012 $21,536,935 ==============================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 32 35 SUMMIT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) Years ended December 31, - ------------------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ INTEREST INCOME Loans ................................................................... $1,191,805 $1,132,584 $ 951,029 Securities: Trading account securities ............................................ 1,481 1,981 747 Securities available for sale ......................................... 152,326 63,973 81,187 Securities held to maturity ........................................... 201,481 289,310 265,365 - ------------------------------------------------------------------------------------------------------------------------------ Total securities .................................................... 355,288 355,264 347,299 Federal funds sold and securities purchased under agreements to resell .. 2,894 7,122 3,843 Deposits with banks ..................................................... 820 647 629 - ------------------------------------------------------------------------------------------------------------------------------ Total interest income ............................................... 1,550,807 1,495,617 1,302,800 - ------------------------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE Savings and time deposits ............................................... 484,524 478,643 349,989 Commercial certificates of deposit $100,000 and over .................... 43,011 36,090 18,858 Borrowed funds and long-term debt ....................................... 111,761 111,643 107,126 - ------------------------------------------------------------------------------------------------------------------------------ Total interest expense .............................................. 639,296 626,376 475,973 - ------------------------------------------------------------------------------------------------------------------------------ Net interest income ................................................. 911,511 869,241 826,827 Provision for loan losses ............................................... 62,000 71,850 91,995 - ------------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses ................. 849,511 797,391 734,832 - ------------------------------------------------------------------------------------------------------------------------------ NON-INTEREST INCOME Service charges on deposit accounts ..................................... 98,949 88,083 82,997 Service and loan fee income ............................................. 40,414 35,562 37,013 Trust income ............................................................ 39,540 35,418 33,667 Securities gains ........................................................ 5,217 8,606 2,232 Trading account gains ................................................... 477 1,295 847 Other ................................................................... 62,866 55,225 53,310 - ------------------------------------------------------------------------------------------------------------------------------ Total non-interest income ........................................... 247,463 224,189 210,066 - ------------------------------------------------------------------------------------------------------------------------------ NON-INTEREST EXPENSES Salaries ................................................................ 245,507 251,253 244,906 Pension and other employee benefits ..................................... 80,873 85,297 77,906 Occupancy, net .......................................................... 71,368 70,297 69,617 Furniture and equipment ................................................. 64,841 61,104 58,561 Communications .......................................................... 30,029 26,155 24,885 Savings Association Insurance Fund assessment ........................... 11,059 -- -- Deposit insurance premium ............................................... 3,780 21,600 37,983 Restructuring charges ................................................... 110,700 -- 13,565 Other ................................................................... 129,778 126,655 172,242 - ------------------------------------------------------------------------------------------------------------------------------ Total non-interest expenses ......................................... 747,935 642,361 699,665 - ------------------------------------------------------------------------------------------------------------------------------ Income before taxes ................................................. 349,039 379,219 245,233 Federal and state income taxes .......................................... 119,864 136,349 88,952 - ------------------------------------------------------------------------------------------------------------------------------ Income before cumulative effect of a change in accounting principle . 229,175 242,870 156,281 Cumulative effect of a change in accounting principle ................... -- -- (1,731) - ------------------------------------------------------------------------------------------------------------------------------ Net Income .......................................................... $ 229,175 $ 242,870 $ 154,550 ============================================================================================================================== Net Income Per Common Share: Income before cumulative effect of a change in accounting principle . $ 2.44 $ 2.77 $ 1.82 Cumulative effect of a change in accounting principle ................... -- -- (.02) - ------------------------------------------------------------------------------------------------------------------------------ Net Income Per Common Share ......................................... $ 2.44 $ 2.77 $ 1.80 ============================================================================================================================== Average Common Shares Outstanding (in thousands) ........................ 93,061 86,674 84,381 ==============================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 33 36 Summit Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) Years ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net income .......................................................................... $ 229,175 $ 242,870 $ 154,550 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for loan losses and other real estate owned ............................ 64,204 77,736 102,568 Depreciation, amortization, and accretion, net .................................... 24,644 44,075 44,168 Restructuring charges ............................................................. 110,700 -- 13,565 Deferred income tax ............................................................... 10,916 22,486 23,244 Gains on sales of trading account securities and securities available for sale .... (5,694) (9,901) (3,079) Gains on sales of mortgages held for sale ......................................... (1,935) (4,806) (2,759) Gains on sales of other real estate owned ......................................... (3,596) (3,528) (1,457) Proceeds from sales of other real estate owned .................................... 27,165 24,534 44,927 Proceeds from sales of mortgages held for sale .................................... 375,824 129,650 450,554 Originations of mortgages held for sale ........................................... (372,389) (160,290) (373,552) Net decrease (increase) in trading account securities ............................. 2,738 7,528 (2,536) Net (increase) decrease in accrued interest receivable and other assets ........... (40,986) 44,626 (320,559) Net (decrease) increase in accrued interest payable, accrued expenses, and other liabilities ........................................................... (96,779) 13,775 23,095 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities ....................................... 323,987 428,755 152,729 - ------------------------------------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Purchases of securities held to maturity ............................................ (504,879) (562,943) (2,134,258) Purchases of securities available for sale .......................................... (884,304) (276,199) (557,253) Proceeds from maturities of securities held to maturity ............................. 697,822 924,202 1,375,252 Proceeds from maturities of securities available for sale ........................... 486,028 203,609 800,271 Proceeds from sales of securities available for sale ................................ 139,796 401,104 111,023 Net decrease (increase) in Federal funds sold and securities purchased under agreements to resell .............................................................. 63,832 (84,481) 303,425 Net (increase) decrease in interest bearing deposits with banks ..................... (6,496) 493 12,958 Purchase acquisitions ............................................................... -- (36,273) (42,156) Net increase in loans ............................................................... (221,625) (654,001) (1,071,204) Purchases of premises and equipment, net ............................................ (7,791) (18,515) (24,044) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities ........................................... (237,617) (103,004) (1,225,986) - ------------------------------------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Net (decrease) increase in deposits ................................................. (496,212) 528,488 546,205 Net increase (decrease) in short-term borrowings .................................... 274,541 (520,483) 758,412 Principal payments on long-term debt, net ........................................... (35,085) (196,499) (398,004) Proceeds from issuance of debt, net of related expenses ............................. 300,200 76,425 475,439 Dividends paid ...................................................................... (133,185) (94,784) (74,042) Proceeds from issuance of common stock under dividend reinvestment and other stock plans ............................................................. 30,301 32,631 24,962 Purchase of common stock ............................................................ (91,175) -- -- Redemptions of preferred stock ...................................................... (42,620) (5,984) -- Other, net .......................................................................... (3,966) (4,186) (714) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash (used in) provided by financing activities ............................. (197,201) (184,392) 1,332,258 - ------------------------------------------------------------------------------------------------------------------------------------ (Decrease) increase in cash and due from banks ...................................... (110,831) 141,359 259,001 Beginning cash balance of acquired entities ......................................... 29,797 9,273 4,432 Cash and due from banks, beginning of year .......................................... 1,337,718 1,187,086 923,653 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and due from banks, end of year ................................................ $ 1,256,684 $ 1,337,718 $ 1,187,086 ==================================================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid: Interest payments ................................................................. $ 636,913 $ 615,750 $ 469,079 Income tax payments ............................................................... 123,408 100,386 73,191 Noncash investing activities: Net transfer of securities held to maturity to (from) securities available for sale -- 1,397,526 (573,715) Net transfer of loans to other real estate owned .................................. 21,401 30,050 47,628 ==================================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 34 37 Summit Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands) Preferred Common Retained Stock Stock Surplus Earnings - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 ............................ $ 50,008 $ 99,901 $ 706,530 $ 596,348 Beginning balance of immaterial pooled acquisition (450,000 shares) ...................... -- 540 (140) 2,395 Net unrealized gain on securities upon adoption of a change in accounting principle, net of tax ........................................ -- -- -- -- Adjustment for the pooling of companies with different fiscal year ends ........................ -- -- 343 474 Net income .......................................... -- -- -- 154,550 Cash dividend declared: Preferred stock ................................... -- -- -- (3,035) Common stock ...................................... -- -- -- (74,451) Common stock issued: Dividend reinvestment and other stock plans (647,661 shares) ................................ -- 777 14,690 -- Exercise of stock options, net (655,374 shares) ... -- 787 8,708 -- Change in unrealized gain (loss) on securities, net of tax ........................................ -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 ............................ 50,008 102,005 730,131 676,281 - ------------------------------------------------------------------------------------------------------------------------------- Net income .......................................... -- -- -- 242,870 Cash dividend declared: Preferred stock ................................... -- -- -- (2,700) Common stock ...................................... -- -- -- (96,276) Common stock issued: In connection with purchase acquisition of Bancorp New Jersey, Inc. (1,948,153 shares) ..... -- 2,338 65,848 -- Dividend reinvestment and other stock plans (894,061 shares) ................................ -- 1,073 24,684 -- Exercise of stock options, net (624,862 shares) ... -- 749 6,125 -- Redemption of Series C preferred stock (295,519 shares) .................................. (7,388) -- -- 1,404 Change in unrealized gain (loss) on securities, net of tax ........................................ -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 ............................ 42,620 106,165 826,788 821,579 - ------------------------------------------------------------------------------------------------------------------------------- Beginning balance of immaterial pooled acquisitions (4,353,085 shares) ................... -- 5,224 29,612 14,054 Net income .......................................... -- -- -- 229,175 Cash dividend declared: Preferred stock ................................... -- -- -- (2,544) Common stock ...................................... -- -- -- (134,592) Common stock issued: Dividend reinvestment and other stock plans (282,390 shares) ................................ -- 339 10,083 -- Exercise of stock options, net (856,062 shares) ... -- 1,027 18,852 -- Purchase of common stock at cost (2,329,880 shares) ................................ -- (2,796) (88,379) -- Reissuance of treasury stock in conjunction with acquisition (2,329,880 shares) .................... -- 2,796 84,527 -- Redemption of Series B preferred stock (600,166 shares) and Series C preferred stock (504,481 shares) .................................. (42,620) -- -- -- Change in unrealized gain (loss) on securities, net of tax ........................................ -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 ............................ $ -- $ 112,755 $ 881,483 $ 927,672 =============================================================================================================================== - -------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Net Total Unrealized Shareholders' Gain (Loss) Equity - ------------------------------------------------------------------------------------------------- Balance, December 31, 1993 ............................ $ 3,740 $ 1,456,527 Beginning balance of immaterial pooled acquisition (450,000 shares) ...................... -- 2,795 Net unrealized gain on securities upon adoption of a change in accounting principle, net of tax ........................................ 9,355 9,355 Adjustment for the pooling of companies with different fiscal year ends ........................ -- 817 Net income .......................................... -- 154,550 Cash dividend declared: Preferred stock ................................... -- (3,035) Common stock ...................................... -- (74,451) Common stock issued: Dividend reinvestment and other stock plans (647,661 shares) ................................ -- 15,467 Exercise of stock options, net (655,374 shares) ... -- 9,495 Change in unrealized gain (loss) on securities, net of tax ........................................ (37,803) (37,803) - ------------------------------------------------------------------------------------------------- Balance, December 31, 1994 ............................ (24,708) 1,533,717 - ------------------------------------------------------------------------------------------------- Net income .......................................... -- 242,870 Cash dividend declared: Preferred stock ................................... -- (2,700) Common stock ...................................... -- (96,276) Common stock issued: In connection with purchase acquisition of Bancorp New Jersey, Inc. (1,948,153 shares) ..... -- 68,186 Dividend reinvestment and other stock plans (894,061 shares) ................................ -- 25,757 Exercise of stock options, net (624,862 shares) ... -- 6,874 Redemption of Series C preferred stock (295,519 shares) .................................. -- (5,984) Change in unrealized gain (loss) on securities, net of tax ........................................ 29,872 29,872 - ------------------------------------------------------------------------------------------------- Balance, December 31, 1995 ............................ 5,164 1,802,316 - ------------------------------------------------------------------------------------------------- Beginning balance of immaterial pooled acquisitions (4,353,085 shares) ................... (567) 48,323 Net income .......................................... -- 229,175 Cash dividend declared: Preferred stock ................................... -- (2,544) Common stock ...................................... -- (134,592) Common stock issued: Dividend reinvestment and other stock plans (282,390 shares) ................................ -- 10,422 Exercise of stock options, net (856,062 shares) ... -- 19,879 Purchase of common stock at cost (2,329,880 shares) ................................ -- (91,175) Reissuance of treasury stock in conjunction with acquisition (2,329,880 shares) .................... -- 87,323 Redemption of Series B preferred stock (600,166 shares) and Series C preferred stock (504,481 shares) .................................. -- (42,620) Change in unrealized gain (loss) on securities, net of tax ........................................ 366 366 - ------------------------------------------------------------------------------------------------- Balance, December 31, 1996 ............................ $ 4,963 $ 1,926,873 ================================================================================================= - -------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 35 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- The Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles and prevailing industry standards. The following is a description of the significant accounting policies used in the preparation of the Consolidated Financial Statements. BUSINESS On March 1, 1996, UJB Financial Corp. completed its acquisition of The Summit Bancorporation, and the company changed its name to Summit Bancorp. Summit Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956. Through its bank and active non-bank subsidiaries, a full range of banking services and certain non-banking services are provided to its customers in a competitive environment. Summit Bancorp is regulated by various Federal and state agencies and is subject to periodic examinations by those regulatory authorities. PRINCIPLES OF CONSOLIDATION The accompanying Consolidated Financial Statements include the accounts of Summit Bancorp after elimination of all significant intercompany accounts and transactions. Certain prior period amounts have been reclassified to conform to the financial statement presentation of 1996. The reclassifications have no effect on shareholders' equity or net income as previously reported. Prior period financial statements have been restated to include the accounts and results of operations for all material acquisitions accounted for as pooling-of-interests combinations. For acquisitions using the purchase method of accounting, results of operations are included from the dates of acquisition. The assets and liabilities of companies acquired under the purchase method of accounting have been adjusted to estimated fair values at the date of acquisition; the resulting net discount or premium is being accreted or amortized into income over the estimated remaining lives of the related assets and liabilities. In preparation of financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. SECURITIES Securities are classified into one of three categories: trading account, held to maturity, and available for sale. Securities that are purchased specifically for short-term appreciation with the intent of selling in the near future are classified as trading account securities. Trading account securities are carried at fair value with realized and unrealized gains and losses reported in non-interest income. Debt securities purchased with the intent and ability to hold until maturity are classified as securities held to maturity and are carried at cost, adjusted for amortization of premiums and accretion of discounts. All other securities, including equity securities, are classified as securities available for sale. Securities available for sale may be sold prior to maturity in response to changes in interest rates, changes in prepayment risk, for asset/liability management purposes, or other factors. These securities are carried at fair value with unrealized gains and losses, including the effect of hedges, reported on a net-of-tax basis, as a separate component of shareholders' equity. Realized gains and losses, which are generally computed using the specific identification method, are reported in non-interest income. LOANS Loans are generally carried at the principal amount outstanding, net of unearned discounts and deferred loan origination fees and costs. Interest on loans is accrued and credited to interest income as earned. Loan origination fees and certain direct loan origination costs are deferred and amortized over the life of the loan in interest income as an adjustment to the yield. Other loan fees are recognized as earned and are included in non-interest income. Residential mortgage loans that are serviced for others are not included in the Consolidated Financial Statements. Fees earned for servicing loans are reported as non-interest income primarily when the related loan payments are collected. Loan servicing costs are charged to non-interest expense as incurred. Loans held for sale primarily consist of residential mortgages and are carried at the lower of cost or market using the aggregate method. Gains and losses on loans sold are included in non-interest income. NON-PERFORMING LOANS Non-performing loans consist of commercial and industrial, construction and development, and commercial mortgage loans for which the accrual of interest has been discontinued. These loans are classified as non-performing when they are 90 days or more past due as to principal or interest or where reasonable doubt exists as to timely collectibility. 36 39 Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," were adopted prospectively on January 1, 1995. Under SFAS Nos. 114 and 118, when it is probable that, based on current information, the lender will not collect all amounts due under the contractual terms of the loan, the loan is to be reported as impaired. Summit Bancorp considers all of its non-performing loans to be impaired. At the time a loan is placed on non-accrual status, previously accrued and uncollected interest is reversed against interest income. Interest income on non-accrual loans is generally credited to income on a cash basis; however, if ultimate collectibility of principal is in doubt, interest collections are applied as principal reductions. A loan is transferred to accrual status when it is brought current and its future collectibility is assured. Smaller balance loans such as consumer loans and residential mortgages, which are collectively evaluated, are specifically excluded from the population of impaired loans. Interest accruals on all consumer and residential mortgage loans cease at 90 days, at which time all previously accrued interest is reversed. Generally, all non-real-estate consumer loans are charged off at 120 days. All impaired loans, residential mortgage loans and consumer real estate secured loans, or a portion thereof, are charged off when deemed uncollectible. Loan impairment is measured based on the present value of the expected future cash flows discounted at the loan's effective interest rate or the underlying value of collateral for collateral dependent loans. The impaired loan's carrying value in excess of the expected cash flows or collateral value is specifically reserved for or is charged to the allowance for loan losses. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is a valuation reserve available for losses incurred or expected on extensions of credit. Credit losses primarily arise from the loan portfolio, but may also be derived from other credit-related sources including commitments to extend credit, guarantees and standby letters of credit. Additions are made to the allowance through periodic provisions which are charged to expense. All losses of principal are charged to the allowance when incurred or when a determination is made that a loss is expected. Subsequent recoveries, if any, are credited to the allowance. The adequacy of the allowance for loan losses is determined through a quarterly review of outstanding loans and commitments to extend credit. The impact of economic conditions on the creditworthiness of the borrowers is considered, as well as loan loss experience, changes in the composition and volume of the loan portfolio, and management's assessment of the risks inherent in the loan portfolio. These and other factors are used in assessing the overall adequacy of the allowance for loan losses and the resulting provision for loan losses. PREMISES AND EQUIPMENT Premises, furniture, and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method. Premises, furniture, and equipment are depreciated over the estimated useful lives of the assets or terms of the leases, as applicable. Estimated useful lives are ten to forty years for premises, and three to ten years for furniture and equipment. Maintenance and repairs are charged to non-interest expenses as incurred, while renewals and major improvements are capitalized. Upon disposition, premises, furniture and equipment are removed from the property accounts at their net carrying amount with the resulting gain or loss credited or charged to non-interest income or expenses. OTHER REAL ESTATE OWNED (OREO) OREO is carried at the lower of cost or fair value less estimated cost to sell. When a property is acquired, the excess of the carrying amount over fair value, if any, is charged to the allowance for loan losses. An allowance for OREO has been established, through charges to OREO expense, to maintain properties at the lower of cost or fair value less estimated cost to sell. Operating results of OREO, including rental income, operating expenses, and gains and losses realized from the sale of properties owned, are included in non-interest expenses. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired through purchase acquisitions. The amortization of goodwill is on a straight-line basis over the estimated periods to be benefited, ranging from ten to twenty-five years, and is included in non-interest expenses. Other intangibles primarily consist of core deposit intangibles which represent the intangible value of depositor relationships assumed in acquisitions. The amortization of these intangibles is on an accelerated basis over their estimated periods of benefit, ranging from five to ten years, and is included in non-interest expenses. MORTGAGE SERVICING RIGHTS Effective January 1, 1996, SFAS No. 122, "Accounting for Mortgage Servicing Rights," was adopted on a prospective basis. SFAS No. 122 requires the recognition of separate assets for the rights to service mortgage loans for others, however those servicing rights are acquired, through purchase transactions or loan originations. Mortgage servicing rights are amortized over the estimated net servicing life and are evaluated for impairment based on their fair value on a quarterly basis. The fair value is estimated using the present value of future cash flows along with numerous assumptions including servicing income, cost of servicing, discount rates, prepayment anticipations and default rates. Impairment adjustments are recognized through the use of a valuation allowance. 37 40 DERIVATIVE FINANCIAL INSTRUMENTS Off-balance-sheet financial derivatives are used as part of the overall asset/liability management process. These instruments are used to manage risk related to changes in interest rates. At December 31, 1996, interest rate swaps, caps and floors were used primarily to manage interest rate risk. Interest rate swaps are agreements with counterparties to exchange periodic interest payments calculated on a notional principal amount and are accounted for under the accrual method. To qualify for accounting under the accrual method, the swaps must be designated to interest-bearing assets or liabilities and must modify their interest rate characteristics over the term of the agreement or the designated instrument, whichever is shorter. The net periodic interest payments or receipts arising from these instruments are recognized in interest income or interest expense as yield adjustments to the designated asset or liability. Interest rate caps and floors are agreements in which, for an upfront premium and on predetermined future dates, the counterparty agrees to pay an interest amount based on the movement of specified market interest rates either above or below a predetermined level. The payments, if applicable, are derived from the measured rate variance multiplied by the contractual notional volume. To qualify for accrual accounting, interest rate caps and floors must be designated to interest-bearing assets or liabilities and must modify their interest rate characteristics over the term of the agreement or the designated instrument, whichever is shorter. Costs of interest rate caps and floors are deferred and amortized in interest income or interest expense as adjustments to the yield of the designated instrument. Unamortized costs are included in other assets. Payments received on these caps and floors are recognized under the accrual method as adjustments to interest income or interest expense of the designated instruments. Changes in the fair value of derivatives are only reported in financial statements if they are hedging financial instruments accounted for at fair value on the balance sheet. If terminated, realized gains and losses on these instruments are deferred and amortized in interest income and interest expense as yield adjustments to the designated asset or liability over the shorter of the remaining life of the agreement or the designated asset or liability. Summit Bancorp does not hold or issue any derivative financial instruments for trading purposes where changes in their values are reported in earnings. STOCK-BASED COMPENSATION Stock-based compensation is accounted for under the intrinsic value based method as prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Included in these Notes to the Consolidated Financial Statements are the pro forma disclosures required by SFAS No. 123, "Accounting for Stock-Based Compensation," which assumes the fair value based method of accounting had been adopted. RETIREMENT PLANS Several formal non-contributory retirement plans exist which cover substantially all full-time employees. Annual contributions are made to the plans in amounts at least equal to the minimum regulatory requirements and no greater than the maximum amount that can be deducted for Federal income tax purposes. The costs associated with these benefits are accrued based on actuarial assumptions and included in non-interest expenses. INCOME TAXES The amount provided for Federal income taxes is based on income reported for consolidated financial statement purposes, after elimination of Federal tax-exempt income which is derived primarily from securities of state and political subdivisions and certain commercial and mortgage loans. The amount provided for state income taxes is based on income reported by each subsidiary on a stand alone basis. Deferred Federal and state tax assets and liabilities are recognized for the expected future tax consequences of existing differences between financial statement and tax bases of existing assets and liabilities, as well as for operating losses. The effect of a change in the tax rate on deferred taxes is recognized in the period of the enactment date. A consolidated Federal income tax return is filed with the amount of income tax expense or benefit computed and allocated to each subsidiary on a separate return basis. NET INCOME PER COMMON SHARE Net income per common share is calculated by dividing net income, less the dividends on preferred stocks, by the average daily number of common shares outstanding during the period. Common stock equivalents are not included in the calculation as they have no material dilutive effect. 38 41 NOTE 2 ACQUISITIONS AND RESTRUCTURING CHARGES - -------------------------------------------------------------------------------- ACQUISITIONS On March 1, 1996, UJB Financial Corp. completed its acquisition of The Summit Bancorporation, and the company changed its name to Summit Bancorp. This transaction was accounted for as a pooling of interests, and all financial information has been restated for 1995 and prior periods. Of the acquisitions accounted for as poolings of interest, The Flemington National Bank and Trust Company (Flemington), Garden State Bancshares, Inc. (Garden State) and Lancaster Financial Ltd., Inc. acquisitions were not material to Summit Bancorp's Consolidated Financial Statements and were recorded as adjustments to beginning shareholders' equity in the year of acquisition. Entities acquired under the purchase method of accounting are reflected in Summit Bancorp's financial statements from the date of acquisition. On August 28, 1996, Summit Bancorp announced a definitive merger agreement to acquire B.M.J. Financial Corp. (B.M.J.). At December 31, 1996, B.M.J. had total assets of $676 million, loans of $449 million and deposits of $552 million. The transaction is expected to be consummated in March 1997 in an exchange of .56 shares of Summit Bancorp common stock for each share of B.M.J. common stock. This transaction will be accounted for as a pooling of interests. On February 28, 1997, Summit Bancorp announced a definitive merger agreement to acquire Collective Bancorp, Inc.(Collective). At December 31, 1996, Collective had total assets of $5,544 million, loans of $2,874 million and deposits of $3,553 million. The transaction is intended to be accounted for as a pooling of interests in an exchange of .895 shares of Summit Bancorp common stock for each share of Collective common stock. At December 31, 1996, there were approximately 20.4 million of Collective shares issued and outstanding. This transaction is subject to regulatory and Collective shareholder approval, and is anticipated to be consummated in the third quarter of 1997. RESTRUCTURING CHARGES Summit Bancorp recorded restructuring charges of $110.7 million, or $.75 per common share, for merger-related expenses associated with The Summit Bancorporation, Flemington and Garden State acquisitions. Also included in the restructuring charge was $9.5 million for costs relating to the closing of select full-service branches in conjunction with the supermarket branch initiative. The Summit Bancorporation acquisition accounts for $89 million of the restructuring charge of which $35 million is for personnel expenses. Personnel expenses include severance pay and benefits for terminated employees including external placement costs. Charges for real estate were approximately $26 million. Real estate expenses resulted from the costs incurred when branches and other operation facilities were consolidated, including lease-termination costs, write-downs of owned properties and leasehold improvements and other facility-related costs. Charges for professional fees amounted to $12 million and included costs for investment banking, accounting and legal fees. Charges for data processing were $8 million, which primarily included costs associated with the disposal or write-offs of duplicate or non-usable software or hardware systems. The remaining $8 million was for account conversions, communications and other merger costs. Merger-related restructuring charges also included $4.3 million for the Flemington acquisition and $7.9 million for the Garden State acquisition. The types of costs incurred for these acquisitions are similar to that of The Summit Bancorporation. These charges included only identified direct and incremental costs associated with the mergers and the restructuring. Funding for cash expenditures related to the charges have, and will be paid for out of operations of Summit Bancorp. Liquidity was not significantly impacted by these cash outlays. Approximately $71 million of restructuring charge payments and $12 million of write-offs had been realized through December 31, 1996. It is anticipated that the remaining restructuring charges will be used in 1997.
SUMMARY OF COMPLETED ACQUISITIONS Cash (In millions, except common shares issued) Date Assets Loans Deposits Paid - ------------------------------------------------------------------------------------------------------------------------------- 1996 Central Jersey Financial Corporation ............... Dec. 7 $ 446.6 $ 200.5 $ 376.8 $ -- The Summit Bancorporation .......................... March 1 5,654.1 3,562.2 4,693.7 -- The Flemington National Bank and Trust Company ..... Feb. 23 285.9 190.6 257.5 -- Garden State Bancshares, Inc.* ..................... Jan. 16 311.8 208.8 281.8 -- 1995 Bancorp New Jersey, Inc. ........................... July 11 504.5 290.4 450.0 36.3 1994 Palisade Savings Bank, FSB ......................... Sept. 16 324.2 164.8 266.7 42.2 Crestmont Financial Corp.* ......................... Sept. 13 859.4 422.7 726.2 -- Lancaster Financial Ltd., Inc.* .................... Sept. 1 16.1 12.9 -- -- VSB Bancorp, Inc. .................................. July 1 381.1 133.0 294.0 --
Common Shares Method of (In millions, except common shares issued) Issued Accounting - ---------------------------------------------------------------------------------------- 1996 Central Jersey Financial Corporation ............. 2,329,880 Stock purchase The Summit Bancorporation ........................ 34,078,905 Pooling of interests The Flemington National Bank and Trust Company ... 1,324,000 Pooling of interests Garden State Bancshares, Inc.* ................... 3,029,085 Pooling of interests 1995 Bancorp New Jersey, Inc. ......................... 1,948,153 Stock/cash purchase 1994 Palisade Savings Bank, FSB ....................... -- Cash purchase Crestmont Financial Corp.* ....................... 3,829,588 Pooling of interests Lancaster Financial Ltd., Inc.* .................. 450,000 Pooling of interests VSB Bancorp, Inc. ................................ 2,628,912 Pooling of interests
* Amounts included in the March 1, 1996, The Summit Bancorporation acquisition. 39 42 NOTE 3 SECURITIES - -------------------------------------------------------------------------------- The following table represents the major components of investment securities.
1996 1995 ---------------------------------------------- ---------------------------------------------- Gross Gross Gross Gross Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------------------ Securities Available for Sale: U.S. Government and Federal agencies . $2,188,919 $ 8,755 $ 15,291 $2,182,383 $1,904,017 $14,238 $ 15,996 $1,902,259 States and political subdivisions .... 12,908 1 3 12,906 -- -- -- -- Other securities: Mortgage-backed .................... 317,434 1,232 997 317,669 348,939 2,079 2,285 348,733 Other debt ......................... 30,197 923 4 31,116 41,497 2,042 87 43,452 Equities, net ...................... 110,771 15,708 139 126,340 102,269 11,531 179 113,621 - ------------------------------------------------------------------------------------------------------------------------------------ Total other ...................... 458,402 17,863 1,140 475,125 492,705 15,652 2,551 505,806 - ------------------------------------------------------------------------------------------------------------------------------------ $2,660,229 $26,619 $ 16,434 $2,670,414 $2,396,722 $29,890 $ 18,547 $2,408,065 - ------------------------------------------------------------------------------------------------------------------------------------ Securities Held to Maturity: U.S. Government and Federal agencies . $1,698,032 $ 6,959 $ 18,561 $1,686,430 $1,261,172 $ 8,180 $ 11,747 $1,257,605 States and political subdivisions .... 217,547 9,575 119 227,003 271,621 14,815 186 286,250 Other securities: Mortgage-backed .................... 1,170,547 894 18,518 1,152,923 1,404,834 1,138 20,453 1,385,519 Other debt ......................... 131,258 1,133 400 131,991 109,453 2,326 327 111,452 - ------------------------------------------------------------------------------------------------------------------------------------ Total other ...................... 1,301,805 2,027 18,918 1,284,914 1,514,287 3,464 20,780 1,496,971 - ------------------------------------------------------------------------------------------------------------------------------------ $3,217,384 $18,561 $ 37,598 $3,198,347 $3,047,080 $26,459 $ 32,713 $3,040,826 - ------------------------------------------------------------------------------------------------------------------------------------
Included in interest on securities held to maturity and securities available for sale is tax-exempt income on certain state and municipal securities which amounted to $16,563,000, $21,127,000 and $25,328,000 for 1996, 1995 and 1994, respectively. Gross realized gains on securities available for sale amounted to $7,823,000, $23,892,000 and $2,693,000, while gross realized losses amounted to $3,580,000, $15,994,000 and $834,000 for the years 1996, 1995 and 1994, respectively. These amounts are included in non-interest income as securities gains in the Consolidated Statements of Income. Also included in securities gains are gains and losses realized from the early redemption of securities held to maturity. The carrying value of investment securities pledged to secure public funds and securities sold under agreements to repurchase, as well as for other purposes required by law, was $1,853,832,000 at December 31, 1996. The table below provides the remaining contractual yields of debt securities within the investment portfolios. The carrying value of securities at December 31, 1996, are distributed by contractual maturity. However, mortgage-backed securities and other securities which may have principal prepayment provisions are distributed based on contractual maturity adjusted for historical prepayments. These prepayments are not scheduled over the life of the investment, but are reflected as adjustments to the final maturity distribution. Equity securities, which have no contractual maturity, are shown without the anticipated dividend yield in the due "within one year" column.
Within After one year After five years After one year through five years through ten years ten years Total - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount - ------------------------------------------------------------------------------------------------------------------------------------ SECURITIES AVAILABLE FOR SALE: U.S. Government and Federal agencies ....... $207,262 6.58% $1,173,061 6.07% $193,735 6.60% $608,325 6.71% $2,182,383 States and political subdivisions .......... 12,906 4.19 -- -- -- -- -- -- 12,906 Other securities: Mortgage backed .......................... 7,503 7.19 101,272 6.79 79,470 6.43 129,424 6.15 317,669 Other debt ............................... -- -- 31,089 6.43 -- -- 27 6.46 31,116 Equities, net ............................ 126,340 -- -- -- -- -- -- -- 126,340 - ------------------------------------------------------------------------------------------------------------------------------------ Total other ............................ 133,843 7.19* 132,361 6.71 79,470 6.43 129,451 6.15 475,125 - ------------------------------------------------------------------------------------------------------------------------------------ $354,011 6.46%* $1,305,422 6.13% $273,205 6.55% $737,776 6.61% $2,670,414 - ------------------------------------------------------------------------------------------------------------------------------------ SECURITIES HELD TO MATURITY: U.S. Government and Federal agencies ....... $ 62,846 6.14% $ 866,378 5.99% $396,886 6.72% $371,922 7.03% $1,698,032 States and political subdivisions .......... 45,833 6.17 103,559 6.26 45,931 6.06 22,224 6.40 217,547 Other securities: Mortgage backed .......................... 102,163 5.95 948,823 6.19 67,963 6.36 51,598 6.96 1,170,547 Other debt ............................... 1,055 5.95 77,621 6.23 12,793 6.42 39,789 7.00 131,258 - ------------------------------------------------------------------------------------------------------------------------------------ Total other ............................ 103,218 5.95 1,026,444 6.19 80,756 6.37 91,387 6.98 1,301,805 - ------------------------------------------------------------------------------------------------------------------------------------ $211,897 6.05% $1,996,381 6.11% $523,573 6.61% $485,533 6.99% $3,217,384 - ------------------------------------------------------------------------------------------------------------------------------------
* Yields exclude equity securities. 40 43 NOTE 4 LOANS - -------------------------------------------------------------------------------- The composition of the loan portfolio, net of unearned discount and deferred loan origination fees and costs, at December 31 was as follows:
(In thousands) 1996 1995 - ---------------------------------------------------------------------- Commercial and industrial ........... $ 4,795,252 $ 4,751,227 Construction and development ........ 471,413 569,820 - ---------------------------------------------------------------------- Total commercial loans ............ 5,266,665 5,321,047 Commercial mortgage ................. 2,313,610 2,315,384 Residential mortgage ................ 3,795,752 3,296,818 - ---------------------------------------------------------------------- Total mortgage loans .............. 6,109,362 5,612,202 Home equity ......................... 2,165,550 1,907,883 Automobile .......................... 893,703 826,263 Other consumer ...................... 384,315 352,179 - ---------------------------------------------------------------------- Total consumer loans .............. 3,443,568 $ 3,086,325 - ---------------------------------------------------------------------- $14,819,595 $14,019,574 - ----------------------------------------------------------------------
Summit Bancorp's credit policy emphasizes diversification of risk among industries and borrowers. Concentrations of credit risk, whether on or off the balance sheet, exist in relation to certain groups of customers or counterparties. A group concentration arises when a number of customers or counterparties have similar economic characteristics that would cause their ability to meet contractual obligations or be similarly affected by changes in economic or other conditions. Summit Bancorp does not have a significant exposure to any individual customer, counterparty, or group concentration. Summit Bancorp's business is concentrated in New Jersey and eastern Pennsylvania. A significant portion of the total loan portfolio is secured by real estate or other collateral located in these states. This concentration is mitigated by the diversification of the loan portfolio among commercial, construction, commercial mortgage, residential mortgage, and consumer loans. The commercial and industrial loan portfolio represents approximately 32% of the entire loan portfolio and has no concentration greater than 10% to any specific industry. At December 31, 1996, the ten largest commercial and commercial mortgage loans have outstanding balances of $460,754,000 and unexercised commitments of $61,874,000. Included in the commercial and commercial mortgage loan portfolios are loans where the accrual of interest has been discontinued. These non-performing loans were $132,086,000 and $188,488,000 at December 31, 1996 and 1995, respectively. These loans return to accrual status when the loan becomes contractually current and future collectibility of amounts due is reasonably assured. The table below shows the lost interest on non-performing loans at December 31:
(In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Income that would have been recorded under original contract terms ........ $13,497 $19,724 $19,702 Less interest income received .......... 1,817 2,833 2,642 - -------------------------------------------------------------------------------- Lost income on non-performing loans at year end $11,680 $16,891 $17,060 - --------------------------------------------------------------------------------
The average balance of non-performing loans for 1996 and 1995 was $174,933,000 and $209,674,000, respectively. The amount of cash basis interest income that was received on these loans was $3,312,000 in 1996 and $3,254,000 in 1995. Included in residential mortgage loans are mortgage loans held for sale, which approximated $49,400,000 at December 31, 1996, and $68,800,000 at December 31, 1995. These loans are accounted for at the lower of aggregate cost or market value. NOTE 5 ALLOWANCE FOR LOAN LOSSES - -------------------------------------------------------------------------------- Transactions in the allowance for loan losses were as follows:
(In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Balance, January 1 $279,034 $305,330 $339,028 Acquisition adjustments, net 8,492 6,131 1,910 Add provision charged to expense 62,000 71,850 91,995 - -------------------------------------------------------------------------------- 349,526 383,311 432,933 - -------------------------------------------------------------------------------- Less charge offs: Commercial and industrial 36,524 45,293 37,229 Construction and development 16,862 35,451 39,209 Commercial mortgage 25,695 25,741 21,731 Residential mortgage 5,043 6,016 4,440 Consumer 20,913 13,871 10,300 - -------------------------------------------------------------------------------- Total charge offs 105,037 126,372 112,909 - -------------------------------------------------------------------------------- Add recoveries: Commercial and industrial 12,602 14,684 13,921 Construction and development 2,427 2,072 1,320 Commercial mortgage 2,466 1,920 2,838 Residential mortgage 838 667 594 Consumer 4,897 2,752 3,585 - -------------------------------------------------------------------------------- Total recoveries 23,230 22,095 22,258 - -------------------------------------------------------------------------------- Net charge offs 81,807 104,277 90,651 - -------------------------------------------------------------------------------- Less write downs on transfer to assets held for accelerated disposition -- -- 36,952 - -------------------------------------------------------------------------------- Balance, December 31 $267,719 $279,034 $305,330 - --------------------------------------------------------------------------------
The allocation of the allowance for loan losses at December 31 was as follows:
(In thousands) 1996 1995 - -------------------------------------------------------------------------------- Allowance allocated to non-performing loans $ 19,520 $ 29,473 Allowance allocated to performing loans 114,975 163,703 Unallocated allowance 133,224 85,858 - -------------------------------------------------------------------------------- $267,719 $279,034 - --------------------------------------------------------------------------------
41 44 NOTE 6 PREMISES AND EQUIPMENT - -------------------------------------------------------------------------------- The major components of premises and equipment at December 31 were as follows:
(In thousands) 1996 1995 - -------------------------------------------------------------------- Land .................................. $ 26,451 $ 21,046 Premises and leasehold improvements ... 260,342 251,875 Furniture and equipment ............... 205,284 210,832 - -------------------------------------------------------------------- 492,077 483,753 Less accumulated depreciation and amortization ........................ 287,124 277,062 - -------------------------------------------------------------------- $204,953 $206,691 - --------------------------------------------------------------------
Amounts charged to non-interest expenses for depreciation and amortization amounted to $28,576,000 in 1996, $29,191,000 in 1995, and $28,558,000 in 1994. NOTE 7 OTHER ASSETS - -------------------------------------------------------------------------------- The major components of other assets at December 31 were as follows:
(In thousands) 1996 1995 - -------------------------------------------------------------------------------- Deferred tax assets $156,346 $149,237 Goodwill and other intangibles 148,144 119,676 Other real estate owned 20,979 24,295 Assets held for accelerated disposition -- 16,650 Other 122,849 119,186 - -------------------------------------------------------------------------------- $448,318 $429,044 - --------------------------------------------------------------------------------
See Note 16 for additional information on other real estate owned, goodwill and other intangibles and see Note 17 for detail on the deferred tax assets. Included in "Other" is the carrying value of the capitalized mortgage servicing rights which was $1,646,000 and $1,828,000 at December 31, 1996 and 1995, respectively. The carrying value of these servicing rights approximates market value. NOTE 8 DEPOSITS - -------------------------------------------------------------------------------- The following is an expected maturity distribution of savings and time deposits at December 31, 1996:
(In thousands) Amount - -------------------------------------------------------------------- Due in one year or less ........................ $12,368,126 Due between one and two years .................. 886,727 Due between two and three years ................ 422,116 Due between three and four years ............... 62,616 Due between four and five years ................ 28,135 Due over five years ............................ 12,083 - -------------------------------------------------------------------- $13,779,803 - --------------------------------------------------------------------
As of December 31, 1996, there were $990,681,000 of time deposits greater than $100,000, of which $610,817,000 are classified as commercial certificates of deposit. At year-end 1996 and 1995, there were $36,302,000 and $36,971,000, respectively, of overdraft deposit relationships classified as loans. The total amount of public funds held on deposit as of December 31, 1996 was $867,015,000, for which $191,147,000 of securities were pledged as collateral. NOTE 9 OTHER BORROWED FUNDS - -------------------------------------------------------------------------------- Other borrowed funds at December 31 consisted of the following:
(In thousands) 1996 1995 - -------------------------------------------------------------------------------- Securities sold under agreements to repurchase ........................ $ 796,815 $ 649,650 Federal funds purchased ............. 199,950 200,700 Treasury tax and loan ............... 128,695 90,689 Federal Home Loan Bank advances ..... 90,000 -- Commercial paper* ................... 40,476 38,503 Other ............................... 82,798 63,014 - -------------------------------------------------------------------------------- $1,338,734 $1,042,556 - --------------------------------------------------------------------------------
* Indicates Parent Corporation obligation. Lines of credit at the Parent Corporation are available to support commercial paper borrowings and for general corporate purposes. Interest on these lines of credit approximates the prime lending rate at the time of borrowing. Unused lines amounted to $38,000,000 at December 31, 1996. NOTE 10 LEASE COMMITMENTS - ------------------------------------------------------------------------------- Non-interest expenses include rentals for premises and equipment of $54,441,000 in 1996, $51,629,000 in 1995, and $46,881,000 in 1994, after reduction for sublease rentals of $3,026,000, $3,683,000 and $2,986,000 in each of the respective years. At December 31, 1996, Summit Bancorp was obligated under a number of non-cancelable leases for premises and equipment, many of which provide for increased rentals based upon increases in real estate taxes and the cost of living index. These leases, most of which have renewal provisions, are principally non-financing leases. Minimum rentals under the terms of these leases for the years 1997 through 2001 are $29,647,000, $28,066,000, $23,507,000, $20,634,000 and $18,929,000, respectively. Minimum rentals due after 2002 are $151,409,000. NOTE 11 CONTINGENT LIABILITIES - -------------------------------------------------------------------------------- Summit Bancorp and its subsidiaries are, from time to time, defendants in legal proceedings relating to the conduct of their businesses. In the best judgment of management, the consolidated financial position of Summit Bancorp and its subsidiaries will not be affected materially by the final outcome of any pending legal proceedings or other contingent liabilities and commitments. 42 45 NOTE 12 LONG-TERM DEBT - -------------------------------------------------------------------------------- Long-term debt at December 31 consisted of the following:
(In thousands) 1996 1995 - ----------------------------------------------------------------------- FHLB Notes and advances, 4.00% to 8.05%, due 1997 through 2010 .................... $426,442 $157,460 8.625% Subordinated notes due December 10, 2002* ....................... 175,000 175,000 6.75% Subordinated notes due June 15, 2003.. 49,485 49,405 7.95% Senior notes due August 25, 2003* .... 20,000 20,000 Collateralized mortgage obligations ........ 10,391 13,148 7.75% Sinking fund debentures due November 1, 1997* ........................ 8,659 9,349 Other ...................................... -- 500 - ----------------------------------------------------------------------- $689,977 $424,862 - -----------------------------------------------------------------------
* Indicates Parent Corporation obligation. The major banking subsidiaries of Summit Bancorp are members of the Federal Home Loan Bank (FHLB) and have access to term financing from the FHLB having a maturity of up to 15 years. The FHLB borrowings, reported as long-term debt, had original maturities greater than one year and are secured by securities and residential mortgages under a blanket collateral agreement. The 8.625% subordinated notes were issued in 1992 and are unsecured. Interest is payable semi-annually on June 10 and December 10 of each year. The subordinated notes are not subject to redemption prior to maturity. This debt qualifies as Tier II capital. Summit Bank issued $50 million in 6.75% subordinated notes in 1993. Unamortized discount on the subordinated notes was $515,000 and $595,000 at December 31, 1996 and 1995, respectively, resulting in an effective interest rate of 7.00%. Interest is payable semiannually on June 15 and December 15 of each year. The 6.75% subordinated notes are not subject to redemption prior to maturity. This debt qualifies as Tier II capital. The 7.95% ten-year maturity private placement senior notes were issued in 1993 with interest payable quarterly. Summit Bancorp has the option to prepay the notes, subject to certain prepayment provisions. The collateralized mortgage obligations are secured by investments in mortgage-backed securities having carrying values of $11,588,000 and $14,859,000 at December 31, 1996 and 1995. These mortgage-backed securities have interest rates ranging from 7.25% to 9.50%. A trustee holds the collateral certificates, collects all principal and interest payments thereon, and disburses all funds to the noteholders. Principal amounts due on long-term debt for the years 1997 through 2001 are $93,024,000, $45,260,000, $141,495,000, $69,005,000 and $61,194,000, respectively. NOTE 13 PREFERRED AND COMMON STOCK - -------------------------------------------------------------------------------- PREFERRED STOCK There were 4,000,000 shares of preferred stock authorized as of December 31, 1996 and 1995, with no shares issued at year-end 1996 and 1,104,647 shares issued and outstanding at year-end 1995. The Series B Preferred Stock was redeemed and retired, in whole, at its stated value of $50 per share on December 15, 1996, plus an accrued dividend of $.375 per share. Dividends in the amounts of $2.625, $3.04 and $3.07 per share were declared for 1996, 1995 and 1994, respectively. The Series C Preferred Stock was redeemed and retired, in whole, at its stated value of $25 per share on December 15, 1996, plus a dividend of $.375 per share. Dividends of $1.50 per share were declared for 1996, 1995 and 1994. COMMON STOCK The following table summarizes common stock reserved, issued, outstanding and authorized as of December 31, 1996:
Number (In thousands) of Shares - -------------------------------------------------------------------------------- Dividend Reinvestment Plan .......................... 686 Savings Incentive Plan .............................. 471 Incentive Stock Option Plans ........................ 2,589 Other stock option plans ............................ 5,685 - -------------------------------------------------------------------------------- Unissued and reserved ............................. 9,431 Unissued ............................................ 26,606 Issued and outstanding .............................. 93,963 - -------------------------------------------------------------------------------- Total shares authorized ........................... 130,000 - --------------------------------------------------------------------------------
The total shares reserved represent the amount of shares registered with the Securities and Exchange Commission under current registration statements. Other stock option plans consist primarily of plans acquired through acquisitions, under which no new options can be granted. During 1996 and 1995, Summit Bancorp issued 1,138,452 and 1,518,923 shares of common stock, respectively, for the Dividend Reinvestment, Savings Incentive and other stock option plans. A Shareholder Rights Plan exists which is designed to ensure fair and equal treatment for all shareholders in the event of any proposal to acquire Summit Bancorp. The terms of the Plan provide that effective August 28, 1989, each share of common stock also represents one "right." Each right will entitle the holder to buy one one-hundredth of a share of a new series of preferred stock, Series R, upon the occurrence of certain events. In addition, upon the occurrence of certain other events, holders of the rights will be entitled to purchase either shares of this new preferred stock or shares in an "acquiring person" at half their fair market value as determined under the Plan. 43 46 NOTE 14 BENEFIT PLANS - -------------------------------------------------------------------------------- Summit Bancorp has several trusteed non-contributory defined benefit retirement plans covering substantially all of its employees. The benefits are based on the employees' years of service and final average compensation. The funding policy is to contribute annually an amount that can be deducted for Federal income tax purposes. Contributions are intended to provide not only for benefits attributed for service to date, but also for those expected to be earned in the future. The following table sets forth the qualified retirement plans' funding status and amounts recognized in non-interest expenses at December 31:
(In thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------- Accumulated benefit obligation, including vested benefits of $176,388 in 1996, $172,135 in 1995, and $145,420 in 1994 ..................... $(188,580) $(184,262) $(155,855) - ------------------------------------------------------------------------------------- Projected benefit obligation for services rendered to date ......................... $(239,892) $(230,626) $(195,003) Plan assets at fair value .................. 250,289 219,119 173,225 - ------------------------------------------------------------------------------------- Plan assets over (under) projected benefit obligation ....................... 10,397 (11,507) (21,778) Unrecognized transition asset .............. (5,293) (7,758) (10,319) Unrecognized prior service cost ............ 327 354 667 Unrecognized net loss from past experience, which is different from that assumed, and effect of change in assumptions ........................... 5,097 14,650 20,726 - ------------------------------------------------------------------------------------- Prepaid (accrued) pension cost ............. $ 10,528 $ (4,261) $ (10,704) - ------------------------------------------------------------------------------------- Net pension expense components: Service cost ............................. $ 11,226 $ 9,482 $ 9,063 Interest cost ............................ 17,862 16,315 14,309 Accrued return on plan assets ............ (27,203) (41,635) 7,890 Net deferral and amortization ............ 6,129 22,337 (25,726) - ------------------------------------------------------------------------------------- Net pension expense ........................ $ 8,014 $ 6,499 $ 5,536 - -------------------------------------------------------------------------------------
The plans' assets were principally invested in equities and fixed income securities. The weighted average discount rates for the plans were 7.5% in 1996 and 1995 and 8.0% in 1994. The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 5.0% in 1996 and 1995 and 5.5% in 1994. The weighted-average expected long-term rate of return on plan assets was 9.0% in 1996, 1995 and 1994. Summit Bancorp also maintains non-qualified supplemental retirement plans for certain officers of the company. The plans, which are unfunded, provide benefits in excess of that permitted to be paid by the pension plan under provisions of the tax law. The plans' cost was $2,760,000 for 1996, $3,170,000 for 1995, and $887,000 for 1994. At December 31, 1996, the projected benefit obligation amounted to $13,351,000 and the accrued liability amounted to $9,049,000. In addition to pension benefits, certain health care and life insurance benefits are made available to retired employees. The cost of such benefits is accrued based on actuarial assumptions from the date of hire to the date the employee is fully eligible to receive benefits. The following table sets forth the accumulated postretirement benefit obligation and the net periodic postretirement benefit cost at December 31:
(In thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------ Accumulated postretirement benefit obligation (APBO)...................... $(29,921) $(36,160) $(38,062) Fair value of assets................... -- -- -- --------------------------------------------------------------------------------- Projected benefit obligation funded status ................................ (29,921) (36,160) (38,062) Unrecognized transition obligation..... 16,087 20,983 24,514 Unrecognized prior service cost........ (619) 634 141 Unrecognized loss...................... (3,347) (2,695) (1,122) --------------------------------------------------------------------------------- Accrued APBO............................. $(17,800) $(17,238) $(14,529) --------------------------------------------------------------------------------- Net postretirement benefit cost components: Service cost........................... $ 422 $ 482 $ 574 Interest cost.......................... 2,191 2,670 2,696 Amortization of transition obligation.. 829 1,161 1,190 --------------------------------------------------------------------------------- Net postretirement benefit cost.......... $ 3,442 $ 4,313 $ 4,460 ---------------------------------------------------------------------------------
For measurement purposes, the cost of medical benefits was projected to increase at a rate of 12.0% in 1996, 13.0% in 1995, and 14.0% in 1994 and thereafter decreasing linearly to 6.0% after six years. Increasing the assumed health care cost trend by one percent in each year would increase the accumulated postretirement benefit obligation as of January 1, 1996, by $1,710,000 and the aggregate of the service and interest components of net periodic postretirement benefit cost for the year ended December 31, 1996, by $130,000. The present value of the accumulated benefit obligation assumed a discount rate of 7.5% in 1996 and 1995 and 8.0% in 1994. The rate of increase used in future compensation levels was 5.0% in 1996 and 1995 and 5.5% in 1994. Various incentive plans have been established with the intention of providing added incentive to middle and senior management to increase the profits of the company. The amount of the awards are subject to limits as set forth in the plans. Accruals for these plans amounted to $9,525,000, $9,649,000 and $7,633,000 in 1996, 1995 and 1994, respectively. There is a Savings Incentive Plan which covers employees with one or more years of service. The plan permits eligible employees to make basic contributions to the plan up to 5% of their base compensation with additional contributions up to 10% of their base compensation. Under the current plan, the employer matches 100% of the first 3% of the employee contribution and 50% of the next 2% of the employee contribution. Matching contributions to the plan amounted to $4,633,000, $3,270,000 and $2,446,000 in 1996, 1995 and 1994, respectively. 44 47 NOTE 15 STOCK-BASED COMPENSATION - -------------------------------------------------------------------------------- At December 31, 1996, Summit Bancorp had two types of stock award programs referred to as Long-Term Performance Stock Programs and Incentive Stock Option Programs which are described below. Summit Bancorp applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its stock-based compensation. Incentive stock awards (i.e., nonvested stock awards) are issued under The Long-Term Performance Stock Program to reward executives and to retain them by distributing stock over a period of time. The nonvested stock awards granted were 121,225 shares in 1996, 101,117 shares in 1995 and 130,306 shares in 1994. The fair market value per share on these grants was $36.23 in 1996, $23.82 in 1995 and $21.10 in 1994. These shares vest over several years and are recognized as compensation income to the employee. The compensation cost that has been charged to non-interest expense for the nonvested stock awards was $4,145,000, $3,264,000 and $3,168,000 for 1996, 1995 and 1994, respectively. In 1996, $2,012,000 of compensation cost was recognized in the restructuring charge due to accelerated vesting. The Incentive Stock Option Programs are designed with a broad scope to align the interests of a large number of employees with shareholder interests. These options are intended to be either incentive stock options or non-qualified options. Options have been granted to purchase common stock principally at the fair market value of the stock at the date of grant. Options are exercisable starting one year after the date of grant and generally expire ten years from the date of grant. Upon the exercise of these options, proceeds received in excess of par value of the shares are credited to surplus. The fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: dividend yield of 3.60% and 4.30%; expected volatility of 25% and 28%; risk-free interest rates of 5.40% and 7.80%; and expected lives of 5 years. The weighted-average fair value at grant-date for the incentive options awarded during 1996 and 1995 were $7.64 and $5.94, respectively. Under APB Opinion No. 25, compensation cost for the stock options is not recognized because the exercise price of the stock options equals the market price of the underlying stock on the date of grant. Had compensation expense been recorded for stock options granted as determined under SFAS No. 123, net income would have been reduced by $3,523,000 in 1996 and $2,771,000 in 1995, impacting per share net income by $.04 and $.03, for each respective year. The following is a summary of the status of the Incentive Stock Option Programs and changes during the past three years:
Weighted-Avg. Shares Exercise Price - ------------------------------------------------------------------------ Outstanding, December 31, 1993............. 4,546,520 $15.77 Granted and acquired .................... 554,935 23.79 Exercised ............................... 750,754 10.17 Forfeited and expired ................... 98,845 23.52 - ------------------------------------------------------------------------ Outstanding, December 31, 1994 (3,513,475 exercisable shares at a weighted-avg. exercise price of $16.71) 4,251,856 17.63 - ------------------------------------------------------------------------ Granted and acquired .................... 1,193,987 18.08 Exercised ............................... 1,142,601 11.75 Forfeited ............................... 29,115 23.97 Expired ................................. 1,010 17.56 - ------------------------------------------------------------------------ Outstanding, December 31, 1995 (3,402,035 exercisable shares at a weighted-avg. exercise price of $18.28) 4,273,117 19.28 - ------------------------------------------------------------------------ Granted and acquired .................... 796,810 35.61 Exercised ............................... 969,504 18.07 Forfeited ............................... 15,660 35.49 Expired ................................. 5,625 28.33 - ------------------------------------------------------------------------ Outstanding, December 31, 1996 (3,313,338 exercisable shares at a weighted-avg. exercise price of $19.62) 4,079,138 $22.68 - ------------------------------------------------------------------------
The following table summarizes information about the Incentive Stock Option Programs at December 31, 1996: OUTSTANDING INCENTIVE STOCK OPTIONS
Options Outstanding Options Exercisable --------------------------------------------------- ------------------------------ Weighted-Avg. Range of Options Remaining Weighted-Avg. Options Weighted-Avg. Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price - ------------------------------------------------------------------------------------------------------------ $ 6.80 to $15.16 895,224 3.5 years $11.46 895,224 $11.46 16.40 to 20.83 645,005 3.8 18.28 645,005 18.28 21.32 to 23.88 567,833 4.9 22.48 567,833 22.48 24.00 to 24.75 864,020 7.4 24.66 864,020 24.66 25.06 to 29.44 341,256 3.6 26.06 341,256 26.06 35.00 to 39.03 765,800 9.2 35.91 -- -- - ----------------------------------------------------------------------------------------------------------- 4,079,138 4.6 years $22.68 3,313,338 $19.62 ===========================================================================================================
45 48 NOTE 16 OTHER INCOME AND OTHER EXPENSES - -------------------------------------------------------------------------------- Other income consisted of the following:
(In thousands) 1996 1995 1994 - --------------------------------------------------------------------- International fees ............... $10,912 $10,288 $10,090 Automated teller fees ............ 11,531 5,039 4,801 Brokerage fees ................... 9,099 8,631 7,631 Insurance and annuity income ..... 7,770 5,359 5,986 Gain on sale of assets ........... 2,825 2,457 4,034 Other ............................ 20,729 23,451 20,768 - ---------------------------------------------------------------------- $62,866 $55,225 $53,310 ======================================================================
Other expenses consisted of the following:
(In thousands) 1996 1995 1994 - -------------------------------------------------------------------------- Legal and professional fees ........ $ 28,575 $ 28,113 $ 26,268 Advertising and public relations ... 14,708 16,135 15,604 Amotization of goodwill and other intangibles ...................... 10,823 8,932 5,934 Other real estate owned ............ 2,936 8,093 21,340 Loss on sale of assets (Crestmont).. -- -- 35,390 Other .............................. 72,736 65,382 67,706 - -------------------------------------------------------------------------- $129,778 $126,655 $172,242 ==========================================================================
NOTE 17 INCOME TAXES - -------------------------------------------------------------------------------- The provision for income taxes consists of the following:
(In thousands) 1996 1995 1994 - --------------------------------------------------------------------- Current provision: Federal ....................... $ 92,753 $ 89,760 $55,219 State ......................... 16,195 22,801 10,489 - ---------------------------------------------------------------------- 108,948 112,561 65,708 Deferred provision: Federal ....................... 9,662 19,684 17,636 State ......................... 1,254 4,104 5,608 - ---------------------------------------------------------------------- 10,916 23,788 23,244 - ---------------------------------------------------------------------- Provision for income taxes .... $119,864 $136,349 $88,952 ======================================================================
A summary of the differences between the actual income tax provision and the amounts computed by applying the statutory Federal income tax rate to income is as follows:
(In thousands) 1996 1995 1994 - ---------------------------------------------------------------------------------------- Federal tax at statutory rate ............. $ 122,164 $ 132,727 $ 85,832 Increase (decrease) in taxes resulting from: Tax-exempt interest income .............. (8,407) (13,970) (10,886) State taxes, net of Federal tax effect .. 11,342 17,488 10,452 Other, net .............................. (5,235) 104 3,554 - ---------------------------------------------------------------------------------------- $ 119,864 $ 136,349 $ 88,952 ========================================================================================
The significant Federal and state temporary differences which comprise the deferred tax assets and liabilities presented at December 31 are as follows:
(In thousands) 1996 1995 - -------------------------------------------------------------------------------- Deferred tax assets: Provision for loan losses ............. $105,252 $105,622 Provision for other real estate owned.. 4,625 8,704 Restructuring charges ................. 10,325 -- Other ................................. 36,144 34,911 - -------------------------------------------------------------------------------- 156,346 149,237 Deferred tax liabilities: Leasing operations .................... (30,420) (21,829) Net unrealized gain on securities ..... (2,253) (3,524) Other ................................. (9,973) (539) - -------------------------------------------------------------------------------- (42,646) (25,892) - -------------------------------------------------------------------------------- Net deferred tax assets $113,700 $123,345 ================================================================================
Included in deferred tax assets "Other" is a valuation allowance which has been established against certain Federal and state temporary differences. The valuation allowance was $8,501,000 at December 31, 1996, and $12,416,000 at December 31, 1995. The net change in the total valuation allowance for the years ended December 31, 1996 and 1995, was a decrease of $3,915,000 and an increase of $510,000, respectively. At December 31, 1996, there was a deferred state tax asset of $5,930,000 resulting from operating loss carryforwards. This asset was reserved by the valuation allowance. Management is not aware of any factors which would generate significant differences between taxable income and pre-tax book income in future years except for the effects of the reversal of current or future net deductible temporary differences. However, there can be no assurances that there will not be any significant differences in the future, if circumstances change. Management believes, based upon current facts, that more likely than not there will be sufficient taxable income in future years to realize the deferred tax assets. However, there can be no assurance about the level of future earnings. Included in shareholders' equity are income tax benefits attributable to nonvested stock awards and the exercise of non-qualified incentive stock options of $4,620,000, $1,359,000 and $1,957,000 for the years ended December 31, 1996, 1995 and 1994, respectively. 46 49 NOTE 18 OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - -------------------------------------------------------------------------------- In the ordinary course of business, Summit Bancorp and its subsidiaries enter into a variety of financial instruments that are recorded off the balance sheet. This reporting is considered appropriate where either the exchange of the underlying asset or liability has not yet occurred or the notional amounts are used solely as a means to determine the cash flows to be exchanged. These off-balance-sheet financial instruments are primarily divided into two categories: credit-related financial instruments and derivative financial instruments. Credit-related financial instruments are principally customer related, while derivative financial instruments are acquired primarily for asset/liability management purposes. The following table summarizes the notional amount of off-balance-sheet financial instruments at December 31:
(In thousands) 1996 1995 - -------------------------------------------------------------- Credit-related instruments: Commitments to extend credit ....... $5,053,963 $4,578,939 Standby letters of credit .......... 302,825 298,327 Commercial letters of credit ....... 94,961 104,845 Derivative instruments Interest rate swaps ................ 386,314 967,537 Interest rate floors ............... 430,000 -- Interest rate caps ................. 73,326 63,892 Foreign exchange contracts ......... 33,259 24,382 ==============================================================
CREDIT-RELATED FINANCIAL INSTRUMENTS Commitments to extend credit are legally binding agreements to lend to a customer provided all established contractual conditions are met. These commitments generally have fixed expiration dates and usually require the payment of a fee. Summit Bancorp does not issue long-term fixed-rate loan commitments that can be locked in during the commitment period. Standby letters of credit are conditional guarantees issued to ensure the performance of a customer to a third party and are generally terminated through the fulfillment of a specific condition or through the lapse of time. Commercial letters of credit are conditional commitments, generally less than 180 days, issued to guarantee payment by a customer to a third party upon proof of an international trade shipment. The short-term nature of these instruments limit their credit risk. Fees received from credit-related financial instruments are recognized over the terms of the contracts and are generally included in other non-interest income. The credit risk associated with these financial instruments is essentially the same as that involved in extending loans to customers and is incorporated in the assessment of the adequacy of the allowance for loan losses. Credit risk is managed by limiting the total amount of arrangements outstanding and by applying normal credit policies. Many of the commitments to extend credit are expected to expire without being drawn upon and, therefore, the amounts do not necessarily represent future cash flow requirements. DERIVATIVE FINANCIAL INSTRUMENTS Activities involving interest rate swaps are primarily attributed to asset/liability risk management efforts aimed at stabilizing net interest income through periods of changing interest rates. The interest rate swaps were acquired to hedge interest rate risk on certain interest-earning assets and interest-bearing liabilities. Interest rate swaps are contractual agreements between two parties to exchange interest payments at particular intervals, computed on different terms, on a specified notional amount. The notional amounts represent the base on which interest due each counterparty is calculated and do not represent the potential for gains or losses associated with the market risk or credit risk of such transactions. Under the terms of the interest rate swaps at December 31, 1996, there were $161,314,000 of contracts to receive fixed payments of 5.65% with an expected maturity of August 1998, and an average payout based on three-month LIBOR. Additionally, there were $225,000,000 of interest rate swaps to receive payments at the effective Federal funds rate and make fixed payments of 5.64% with an expected maturity of October 1997. These swaps have resulted in a decrease of $1,952,000 and $9,846,000 in net interest income during 1996 and 1995, respectively, and an increase of $530,000 in 1994. Interest rate caps and floors are agreements in which, for an upfront premium and on predetermined future dates, the counterparty agrees to pay an interest amount based on the movement of specified market interest rates either above or below a strike rate. The payments, if applicable, are derived from the measured rate differential multiplied by the contractual notional volume. The interest rate floors were purchased primarily to hedge adjustable rate LIBOR based assets. Interest rate caps were purchased to accommodate customers who desire interest rate protection on variable rate loans. Credit-related losses can occur in the event of non-performance by the counterparties to the derivative financial instruments. The credit risk that results from interest rate swaps and interest rate floors is represented by the fair value of contracts that have a positive value at the reporting date. At December 31, 1996, the total amount of credit risk was $1,362,000; however, this amount can increase or decrease if interest rates change. To minimize the risk of credit losses, Summit Bancorp monitors the credit standing of the counterparties and only transacts with those that have credit ratings of AA or better. Summit Bancorp enters into contracts to purchase or sell foreign currency to be delivered at a future date to facilitate customer transactions. The notional amount represents the outstanding contracts at year end. 47 50 NOTE 19 FAIR VALUE OF FINANCIAL INSTRUMENTS - -------------------------------------------------------------------------------- The fair value of financial instruments is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced liquidation. Fair value estimates are made at a specific point in time based on the type of financial instrument and relevant market information. Because no quoted market price exists for a significant portion of these financial instruments, the fair values of such financial instruments are derived based on the amount and timing of future cash flows, estimated discount rates, as well as management's best judgment with respect to current economic conditions. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. The fair value information provided is indicative of the estimated fair values of those financial instruments and should not be interpreted as an estimate of the value of Summit Bancorp taken as a whole. The disclosures do not address the value of recognized and unrecognized non-financial assets and liabilities or the value of future anticipated business. The following methods and assumptions were used to estimate the fair values of significant financial instruments at December 31, 1996 and 1995. FINANCIAL ASSETS Cash, short-term investments and customer acceptances have relatively short maturities or no defined maturities, but are payable on demand, with little or no credit risk. The carrying amounts reported in the Consolidated Balance Sheets approximate fair value. Trading account securities and securities available for sale are reported at their respective fair values in the Consolidated Balance Sheets. These values were based on quoted market prices. The fair values of securities held to maturity were also based upon quoted market prices. The fair value of loans is estimated using a combination of techniques including discounted estimated future cash flows and, where available, quoted market prices of similar instruments. The loan portfolios are segmented based upon loan type, credit quality and repricing characteristics. The fair values of most fixed-rate loans are estimated using discounted cash flow models taking into consideration current rates that would be offered to borrowers with similar credit risk for loans with similar remaining terms. The fair values of variable rate loans are estimated by reducing their carrying values by their corresponding general and specific credit reserves. Non-performing loans are primarily valued based upon the net realizable value of the loan's underlying collateral. FINANCIAL LIABILITIES The estimated fair values of demand and savings deposits are equal to the amounts recognized in the Consolidated Balance Sheets. These amounts do not recognize the fair value of core deposit intangibles, which represent the value of a core deposit base with an expected duration. The fair values for medium- to long-term deposit liabilities are calculated by discounting estimated future cash flows using current rates offered for deposits of similar remaining maturities. The fair values for borrowed funds are calculated by discounting estimated future cash flows using current rates offered for borrowings of similar remaining maturities. Due to the short maturities of bank acceptances, their carrying value approximates fair value. The fair value of long-term debt is based upon quoted market prices. For long-term debt issuances where quoted market prices are not available, the fair values are determined using discounted cash flow analyses. The estimated fair values of accrued interest receivable and accrued interest payable are considered to be equal to the amounts recognized in the Consolidated Balance Sheets. OFF-BALANCE-SHEET INSTRUMENTS The estimated fair values of derivative financial instruments are based upon quoted market prices, without consideration of the market values related to the hedged on-balance-sheet financial instruments. For commitments to extend credit and letters of credit, the fair values would approximate fees currently charged to enter into similar agreements. The following table presents the carrying amounts and fair values of financial instruments at December 31:
(In millions) 1996 1995 - --------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Value Value Value Value - --------------------------------------------------------------------------------------------- FINANCIAL ASSETS: Cash and short-term investments .................. $ 1,392.7 $ 1,392.7 $ 1,517.7 $ 1,517.7 Trading account securities ..... 26.4 26.4 28.6 28.6 Securities available for sale ......................... 2,670.4 2,670.4 2,408.1 2,408.1 Securities held to maturity ..................... 3,217.4 3,198.3 3,047.1 3,040.8 Loans, net ..................... 14,551.9 14,859.8 13,740.5 14,080.0 Accrued interest receivable ................... 140.4 140.4 132.4 132.4 Due from customers on acceptance ................... 15.7 15.7 26.7 26.7 FINANCIAL LIABILITIES: Deposits ....................... $18,375.0 $18,417.0 $17,955.1 $18,002.0 Other borrowed funds ........... 1,338.7 1,343.0 1,042.6 1,042.6 Long-term debt ................. 690.0 704.3 424.9 449.2 Accrued interest payable ....... 50.3 50.3 45.6 45.6 Bank acceptances outstanding .................. 15.7 15.7 26.7 26.7 OFF-BALANCE-SHEET INSTRUMENTS: Interest rate swaps ............ NA $ (1.3) NA $ (1.1) Interest rate floors and caps ..................... NA 1.4 NA -- Loan commitments ............... NA (26.9) NA (25.6) Standby letters of credit ...... NA (2.0) NA (1.9) Commercial letters of credit ....................... NA (.1) NA (.1) =============================================================================================
NA - Not applicable. 48 51 NOTE 20 REGULATORY MATTERS - -------------------------------------------------------------------------------- CASH AND DUE FROM BANKS Certain subsidiary banks are required to maintain reserve balances with a Federal Reserve Bank based principally upon deposits. These non-interest-earning reserve balances averaged $492,027,000 in 1996 and $486,373,000 in 1995. LOANS TO AFFILIATES Summit Bancorp's subsidiary banks are restricted, with certain limited exceptions, by the Federal Reserve Act, from extending credit to affiliated companies, including the Parent Corporation. Each subsidiary bank is also subject to collateral security requirements for any loans or extensions of credit permitted by exception. Further, a subsidiary bank may only engage in most transactions with other subsidiaries if terms and conditions are at least as favorable to the bank as those prevailing for transactions with unaffiliated companies. Such secured loans and other regulated transactions are limited in amount to each of its affiliates, including the Parent Corporation. The limitation is 10% of the bank's capital stock and defined surplus per affiliate, and 20% in aggregate to all of its affiliates. At December 31, 1996, the Parent Corporation had available credit from its subsidiary banks of approximately $200,000,000. SUBSIDIARY DIVIDENDS Certain bank regulatory limitations exist on the availability of subsidiary bank undistributed net assets for the payment of dividends to the Parent Corporation without prior approval of bank regulatory authorities. The Federal Reserve Act, which affects the New Jersey state-member bank, restricts the payment of dividends in any calendar year to the net profit of the current year combined with retained net profits of the preceding two years. The Pennsylvania state-chartered bank may declare a dividend up to the amount of accumulated net profit. In addition to these statutory restrictions, the subsidiary banks are required to maintain adequate levels of capital. At December 31, 1996, the total undistributed net assets of the subsidiary banks were $1,774,383,000, of which $238,634,000 was available, under the most restrictive limitations, for the payment of dividends to the Parent Corporation. CAPITAL REQUIREMENTS Summit Bancorp is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have an adverse material impact on Summit Bancorp. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Summit Bancorp must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Summit Bancorp's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weighting and other factors. Quantitative measures established by regulation to ensure capital adequacy require Summit Bancorp and its subsidiary banks to maintain amounts and ratios (set forth in the table below) of Total and Tier I risk-based capital (as defined in the regulations) to risk-weighted assets, and of Tier I leverage to average assets. At December 31, 1996, Summit Bancorp and its banking subsidiaries were well capitalized under the regulatory framework for prompt and corrective action. To be well capitalized, Tier I leverage, Tier I risk-based capital and Total risk-based capital must equal or exceed the ratios set forth in the table below. There are no conditions or events that management believes have changed Summit Bancorp's or its subsidiary banks' well capitalized rating. CAPITAL RATIOS FOR SUMMIT BANCORP AND SIGNIFICANT SUBSIDIARY BANKS (Dollars in thousands)
As of December 31, Minimum Statutory ------------------ Required Well As of Minimum 1996 1995 Capital Capitalized December 31, 1996 Capital - ------------------------------------------------------------------------------------------------------------------------------------ Tier I Leverage Summit Bancorp ................ 8.06% 7.97% ) $1,779,517 $ 883,682 Summit Bank NJ ................ 7.22 7.24 ) 4.00% 5.00% 1,387,275 769,037 Summit Bank PA ................ 7.97 7.79 ) 215,997 108,381 Tier I Risk-Based Capital Summit Bancorp ................ 11.09% 10.75% ) $1,779,517 $ 641,793 Summit Bank NJ ................ 10.05 9.87 ) 4.00% 6.00% 1,387,275 552,403 Summit Bank PA ................ 10.65 10.12 ) 215,997 81,089 Total Risk-Based Capital Summit Bancorp ................ 13.75% 13.46% ) $2,205,390 $1,283,586 Summit Bank NJ ................ 12.32 12.16 ) 8.00% 10.00% 1,701,163 1,104,805 Summit Bank PA ................ 12.60 12.05 ) 255,478 162,178 - ------------------------------------------------------------------------------------------------------------------------------------
49 52 NOTE 21 PARENT CORPORATION INFORMATION - -------------------------------------------------------------------------------- Condensed financial information of Summit Bancorp Parent Corporation is presented below. For information on long-term debt, see Note 12. CONDENSED BALANCE SHEETS
(In thousands) December 31, - ---------------------------------------------------------------------------- 1996 1995 - ---------------------------------------------------------------------------- ASSETS Cash and due from banks .................. $ 11,180 $ 3,570 Securities purchased under agreements to resell .............................. 136,585 191,250 Interest-bearing deposits with banks ..... 5,000 5,000 Securities available for sale ............ 40,611 34,276 Investment in subsidiaries ............... 1,800,714 1,673,115 Due from subsidiaries .................... 237,250 181,142 Premises and equipment, net .............. 1,094 500 Other assets ............................. 24,588 20,481 - ---------------------------------------------------------------------------- TOTAL ASSETS ............................. $2,257,022 $2,109,334 ============================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Accrued expenses and other liabilities ... $ 86,014 $ 64,166 Commercial paper ......................... 40,476 38,503 Long-term debt ........................... 203,659 204,349 - ---------------------------------------------------------------------------- Total liabilities ...................... 330,149 307,018 Total shareholders' equity ............... 1,926,873 1,802,316 - ---------------------------------------------------------------------------- Total liabilities and shareholders' equity $2,257,022 $2,109,334 ============================================================================
CONDENSED STATEMENTS OF INCOME
(In thousands) Years Ended December 31, - ------------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------------ OPERATING INCOME Dividends from subsidiaries ............. $ 225,003 $ 121,010 $ 80,640 Management fees from subsidiaries ....... 34,090 32,761 29,322 Interest from subsidiaries .............. 22,063 22,925 17,026 Securities gains ........................ 5,831 18,829 123 Other interest .......................... 1,119 102 3,719 Other ................................... 616 2,564 684 - ------------------------------------------------------------------------------------------ Total operating income ................ 288,722 198,191 131,514 - ------------------------------------------------------------------------------------------ OPERATING EXPENSES Services charges to subsidiaries ........ 37,055 33,144 -- Interest ................................ 19,726 20,412 19,586 Salaries and employee benefits .......... 5,183 4,193 26,491 Occupancy and equipment ................. 68 70 4,340 Other ................................... 1,355 522 11,314 - ------------------------------------------------------------------------------------------ Total operating expenses .............. 63,387 58,341 61,731 - ------------------------------------------------------------------------------------------ Income before taxes and equity in undistributed net income of subsidiaries ........................ 225,335 139,850 69,783 Federal and state income taxes (benefits) (7,196) 4,891 (3,758) - ------------------------------------------------------------------------------------------ 232,531 134,959 73,541 Equity in undistributed net income of subsidiaries ....................... (3,356) 107,911 81,009 - ------------------------------------------------------------------------------------------ Net income ............................ $ 229,175 $ 242,870 $ 154,550 ==========================================================================================
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands) Years Ended December 31, - ------------------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income .............................. $ 229,175 $ 242,870 $ 154,550 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ....... 150 3 1,794 (Increase) decrease in other assets . (3,924) (50) 18,421 Increase (decrease) in accrued expenses and other liabilities .... 23,280 15,830 (30,531) Equity in undistributed net income of subsidiaries ................... 3,356 (107,911) (81,009) Securities gains .................... (5,831) (18,829) (123) - ------------------------------------------------------------------------------------------- Net cash provided by operating activities ...................... 246,206 131,913 63,102 - ------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from sales of securities available for sale .................... 27,434 28,332 16,819 Net decrease in securities purchased under agreements to resell ............ 54,665 3,376 9,213 Purchase of securities available for sale (23,054) -- -- Payments received on advances to subsidiaries .......................... 451,776 180,278 205,611 Purchase acquisitions ................... -- (36,273) (42,156) Advances to subsidiaries ................ (507,884) (204,588) (198,189) Purchases of premises and equipment, net ................................... (744) -- (2,069) Capital contributions to subsidiaries ... (1,500) (10,310) (11,525) - ------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities ............ 693 (39,185) (22,296) - ------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net increase (decrease) in commercial paper ................................. 1,973 (3,708) 8,852 Principal payments on long-term debt .... (690) (15,689) (3,134) Dividends paid .......................... (133,185) (94,784) (74,042) Repurchase of common stock .............. (91,175) -- -- Proceeds from issuance of common stock, net ............................ 30,301 32,631 24,962 Redemption of preferred stock ........... (42,620) (5,984) -- Other, net .............................. (3,966) (4,186) (714) - ------------------------------------------------------------------------------------------- Net cash used in financing activities ...................... (239,362) (91,720) (44,076) - ------------------------------------------------------------------------------------------- Increase (decrease) in cash and due from banks ............................ 7,537 1,008 (3,270) Cash and due from banks at beginning of year ..................... 3,570 2,562 5,832 Beginning cash balance of acquired entities .............................. 73 -- -- - ------------------------------------------------------------------------------------------- Cash and due from banks at end of year .. $ 11,180 $ 3,570 $ 2,562 ===========================================================================================
50 53 Summit Bancorp and Subsidiaries MANAGEMENT'S REPORT Summit Bancorp and its subsidiaries are responsible for the preparation, integrity, and fair presentation of the audited consolidated financial statements and notes contained on pages 32 through 50 in this report. The statements were prepared in conformity with generally accepted accounting principles appropriate in the circumstances and include amounts that are based on management's estimates and judgments. Other financial information presented throughout the annual report is prepared on a basis consistent with these financial statements. The consolidated financial statements of Summit Bancorp have been audited by KPMG Peat Marwick LLP, independent auditors, whose selection has been ratified by the shareholders. Their audit was made in accordance with generally accepted auditing standards and considered the internal control structure to the extent deemed necessary to support their independent auditors' report appearing herein. Summit Bancorp is responsible for establishing and maintaining an internal control structure to provide reasonable assurance that the financial statements are presented in conformity with generally accepted accounting principles. There are inherent limitations in the effectiveness of any internal control structure, no matter how well designed, including the possibility of human error, the circumvention or overriding of controls, and the consideration of cost in relation to the benefit of the control. Accordingly, even an effective internal control structure can provide only reasonable assurance with respect to financial statement preparation. Furthermore, because of changes in conditions, the effectiveness of an internal control structure may vary over time. To monitor compliance, Summit Bancorp maintains an internal auditing program. This program includes a review for compliance with written policies and procedures and a review of the adequacy and effectiveness of internal controls. The Audit Committee of the Board of Directors of Summit Bancorp, composed entirely of outside directors, meets periodically with the independent auditors, management and internal auditors to review the work of each and ensure that each is properly discharging its responsibilities. The independent auditors and internal auditors have full and free access to the Committee to discuss the results of their audit work, their evaluation of internal controls, and the quality of financial reporting. INDEPENDENT AUDITORS' REPORT The Shareholders and Board of Directors Summit Bancorp: We have audited the accompanying consolidated balance sheets of Summit Bancorp and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Summit Bancorp and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP ------------------------- Short Hills, New Jersey January 20, 1997, except as to the third paragraph of note 2, which is as of February 28, 1997. 51 54 Summit Bancorp and Subsidiaries CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
(Not covered by independent auditors' report.) 1996 1995 1994 - ------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS (IN THOUSANDS) Interest income ..................... $ 1,550,807 $ 1,495,617 $ 1,302,800 Interest expense .................... 639,296 626,376 475,973 - ------------------------------------------------------------------------------------------- Net interest income ............... 911,511 869,241 826,827 Provision for loan losses ........... 62,000 71,850 91,995 - ------------------------------------------------------------------------------------------- Net interest income after provision for loan losses ....... 849,511 797,391 734,832 Non-interest income ................. 247,463 224,189 210,066 Non-interest expenses ............... 626,176 642,361 650,710 Non-recurring charges ............... 121,759 -- 48,955 - ------------------------------------------------------------------------------------------- Income(loss) before income taxes ........................... 349,039 379,219 245,233 Federal and state income taxes (benefit) ......................... 119,864 136,349 88,952 - ------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle ............ 229,175 242,870 156,281 Cumulative effect of a change in accounting principle .............. -- -- (1,731) - ------------------------------------------------------------------------------------------- Net income (loss) ................. $ 229,175 $ 242,870 $ 154,550 =========================================================================================== COMMON SHARE DATA Net income (loss) ................... $ 2.44 $ 2.77 $ 1.80 Net income (loss) (before non-recurring items*) ............. 3.26 2.77 2.22 Cash dividends declared ............. 1.36 1.19 .94 Book value at year end .............. 20.51 19.89 17.45 Market value at year end ............ 43.75 35.63 24.13 Average common shares outstanding (in thousands) .................... 93,061 86,674 84,381 Common shares outstanding at year end (in thousands) ................ 93,963 88,471 85,004 Common stock dividend payout ratio ............................. 55.74% 42.96% 52.22% =========================================================================================== BALANCE SHEET DATA (AT YEAR END, IN THOUSANDS) Total assets ........................ $22,668,012 $21,536,935 $20,894,815 Total deposits ...................... 18,374,986 17,955,103 16,977,109 Total loans ......................... 14,819,595 14,019,574 13,105,179 Shareholders' equity ................ 1,926,873 1,802,316 1,533,717 Long-term debt ...................... 689,977 424,862 544,936 Allowance for loan losses ........... 267,719 279,034 305,330 =========================================================================================== OPERATING RATIOS Before non-recurring items* Return on average assets .......... 1.38% 1.16% .94% Return on average common equity ... 16.61 14.82 12.80 After non-recurring items* Return on average assets .......... 1.03 1.16 .76 Return on average common equity ... 12.41 14.82 10.37 Net interest margin ................. 4.52 4.60 4.53 Efficiency ratio .................... 53.39 57.55 59.71 =========================================================================================== LOAN QUALITY RATIOS Allowance for loan losses to year-end loans .................... 1.81% 1.99% 2.33% Net charge offs to average loans .... .56 .78 .73 Non-performing loans to year-end loans ............................. .89 1.34 1.53 =========================================================================================== CAPITAL RATIOS Average total equity to average total assets ...................... 8.42% 7.97% 7.46% Tier I capital to average assets (leverage) ........................ 8.06 7.97 7.27 Tier I capital to risk-adjusted assets ............................ 11.09 10.75 9.95 Total capital to risk-adjusted assets ............................ 13.75 13.46 12.69 =========================================================================================== OTHER DATA (AT YEAR END) Number of banking offices ........... 345 354 361 Number of automated teller machines .......................... 503 398 260 Number of employees (full-time equivalent) ....................... 7,333 7,547 7,766 Number of employees (full-time) ..... 6,263 6,560 6,816 Number of employees (part-time) ..... 1,369 1,259 1,323 =========================================================================================== - -------------------------------------------------------------------------------------------
*See Glossary on page 18 for definition of non-recurring items. NR - Not reported. NA - Not applicable. 52 55
(Not covered by independent auditors' report.) 1993 1992 1991 1990 1989 1988 - ---------------------------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS (IN THOUSANDS) Interest income ..................... $ 1,236,658 $ 1,341,504 $ 1,562,393 $ 1,704,795 $ 1,654,498 $ 1,396,494 Interest expense .................... 456,797 594,757 882,605 1,035,637 986,011 784,590 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income ............... 779,861 746,747 679,788 669,158 668,487 611,904 Provision for loan losses ........... 112,885 165,553 192,417 335,416 97,245 49,480 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses ....... 666,976 581,194 487,371 333,742 571,242 562,424 Non-interest income ................. 212,802 205,058 178,463 202,218 189,732 151,814 Non-interest expenses ............... 685,330 660,207 604,893 580,863 542,647 491,333 Non-recurring charges ............... 21,500 -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Income(loss) before income taxes ........................... 172,948 126,045 60,941 (44,903) 218,327 222,905 Federal and state income taxes (benefit) ......................... 48,925 35,770 14,445 (21,291) 65,020 59,888 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle ............ 124,023 90,275 46,496 (23,612) 153,307 163,017 Cumulative effect of a change in accounting principle .............. 9,119 -- -- -- (10,730) -- - ---------------------------------------------------------------------------------------------------------------------------------- Net income (loss) ................. $ 133,142 $ 90,275 $ 46,496 $ (23,612) $ 142,577 $ 163,017 ================================================================================================================================== COMMON SHARE DATA Net income (loss) ................... $ 1.57 $ 1.13 $ .60 $ (.38) $ 1.98 $ 2.32 Net income (loss) (before non-recurring items*) ............. 1.61 1.13 .60 (.38) 2.14 2.32 Cash dividends declared ............. .69 .60 .60 1.02 1.11 1.01 Book value at year end .............. 16.89 15.93 15.35 15.32 16.79 15.72 Market value at year end ............ 24.00 24.25 14.63 7.13 18.88 20.75 Average common shares outstanding (in thousands) .................... 82,712 77,499 72,496 71,291 67,764 66,740 Common shares outstanding at year end (in thousands) ................ 83,251 82,039 73,186 71,792 68,129 67,067 Common stock dividend payout ratio ............................. 43.95% 53.10% 100.00% NA 56.06% 43.53% ================================================================================================================================== BALANCE SHEET DATA (AT YEAR END, IN THOUSANDS) Total assets ........................ $19,139,498 $19,204,120 $18,636,270 $ 18,158,687 $ 17,953,260 $16,458,403 Total deposits ...................... 16,164,226 16,462,089 15,790,487 14,991,980 13,896,961 13,324,326 Total loans ......................... 11,881,426 11,972,053 12,145,189 12,280,607 12,382,014 11,041,416 Shareholders' equity ................ 1,456,527 1,356,744 1,173,160 1,150,098 1,239,311 1,157,545 Long-term debt ...................... 467,501 364,762 270,044 394,143 448,848 501,350 Allowance for loan losses ........... 339,028 374,639 388,846 359,258 179,286 142,997 ================================================================================================================================== OPERATING RATIOS Before non-recurring items* Return on average assets .......... .72% .48% .25% (.13)% .91% 1.05% Return on average common equity ... 9.81 7.22 3.89 (2.25) 12.83 15.32 After non-recurring items* Return on average assets .......... .70 .48 .25 (.13) .84 1.05 Return on average common equity ... 9.54 7.22 3.89 (2.25) 11.90 15.32 Net interest margin ................. 4.56 4.46 4.13 4.13 4.52 4.56 Efficiency ratio .................... 63.48 64.44 66.32 64.96 60.68 61.44 ================================================================================================================================== LOAN QUALITY RATIOS Allowance for loan losses to year-end loans .................... 2.85% 3.13% 3.20% 2.93% 1.45% 1.29% Net charge offs to average loans .... 1.25 1.49 1.34 1.24 .52 .32 Non-performing loans to year-end loans ............................. 2.69 3.83 4.82 4.80 2.13 1.25 ================================================================================================================================== CAPITAL RATIOS Average total equity to average total assets ...................... 7.39% 6.73% 6.30% 6.83% 7.26% 7.17% Tier I capital to average assets (leverage) ........................ 7.42 7.03 6.18 6.02 6.97 7.01 Tier I capital to risk-adjusted assets ............................ 10.74 9.77 8.55 8.25 NA NA Total capital to risk-adjusted assets ............................ 13.78 12.45 10.06 9.90 NA NA ================================================================================================================================== OTHER DATA (AT YEAR END) Number of banking offices ........... 366 361 361 369 364 355 Number of automated teller machines .......................... 243 235 207 NR NR NR Number of employees (full-time equivalent) ....................... 8,160 8,295 8,549 8,594 8,587 8,624 Number of employees (full-time) ..... 7,270 7,470 7,692 7,701 7,607 7,738 Number of employees (part-time) ..... 1,224 1,160 1,234 1,254 1,228 1,439 ================================================================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------
(Not covered by independent auditors' report.) 1987 1986 - ---------------------------------------------------------------------- SUMMARY OF OPERATIONS (IN THOUSANDS) Interest income ..................... $ 1,198,911 $ 1,080,713 Interest expense .................... 645,534 609,930 - ---------------------------------------------------------------------- Net interest income ............... 553,377 470,783 Provision for loan losses ........... 40,996 45,599 - ---------------------------------------------------------------------- Net interest income after provision for loan losses ....... 512,381 425,184 Non-interest income ................. 148,002 156,580 Non-interest expenses ............... 451,508 411,737 Non-recurring charges ............... -- -- - ---------------------------------------------------------------------- Income(loss) before income taxes ........................... 208,875 170,027 Federal and state income taxes (benefit) ......................... 58,601 38,436 - ---------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle ............ 150,274 131,591 Cumulative effect of a change in accounting principle .............. -- -- - ---------------------------------------------------------------------- Net income (loss) ................. $ 150,274 $ 131,591 ====================================================================== COMMON SHARE DATA Net income (loss) ................... $ 2.13 $ 2.03 Net income (loss) (before non-recurring items*) ............. 2.13 2.03 Cash dividends declared ............. .91 .82 Book value at year end .............. 14.78 13.58 Market value at year end ............ 22.25 23.75 Average common shares outstanding (in thousands) .................... 65,791 61,542 Common shares outstanding at year end (in thousands) ................ 64,105 61,235 Common stock dividend payout ratio ............................. 42.72% 40.39% ====================================================================== BALANCE SHEET DATA (AT YEAR END, IN THOUSANDS) Total assets ........................ $15,060,173 $13,669,747 Total deposits ...................... 11,765,187 11,324,119 Total loans ......................... 9,864,525 8,602,955 Shareholders' equity ................ 1,078,339 898,857 Long-term debt ...................... 431,284 388,854 Allowance for loan losses ........... 127,460 109,905 ====================================================================== OPERATING RATIOS Before non-recurring items* Return on average assets .......... 1.07% 1.07% Return on average common equity ... 15.68 17.05 After non-recurring items* Return on average assets .......... 1.07 1.07 Return on average common equity ... 15.68 17.05 Net interest margin ................. 4.73 5.22 Efficiency ratio .................... 59.76 60.92 ====================================================================== LOAN QUALITY RATIOS Allowance for loan losses to year-end loans .................... 1.29% 1.28% Net charge offs to average loans .... .25 .31 Non-performing loans to year-end loans ............................. .76 .83 ====================================================================== CAPITAL RATIOS Average total equity to average total assets ...................... 7.16% 6.51% Tier I capital to average assets (leverage) ........................ 7.11 NA Tier I capital to risk-adjusted assets ............................ NA NA Total capital to risk-adjusted assets ............................ NA NA ====================================================================== OTHER DATA (AT YEAR END) Number of banking offices ........... 345 334 Number of automated teller machines .......................... NR NR Number of employees (full-time equivalent) ....................... 8,320 8,050 Number of employees (full-time) ..... 7,513 7,264 Number of employees (part-time) ..... 1,370 1,325 ====================================================================== - ----------------------------------------------------------------------
53 56 Summit Bancorp and Subsidiaries UNAUDITED QUARTERLY FINANCIAL DATA
(In thousands, except per share data) 1996 - ----------------------------------------------------------------------------------------------------------------- Dec. 31 Sept. 30 June 30 Mar. 31 - ----------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Interest income .......................... $ 390,495 $ 386,713 $ 385,846 $ 387,753 Interest expense ......................... 162,007 157,791 157,736 161,762 - ----------------------------------------------------------------------------------------------------------------- Net interest income .................... 228,488 228,922 228,110 225,991 Provision for loan losses ................ 15,500 15,500 15,500 15,500 - ----------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses ............ 212,988 213,422 212,610 210,491 Non-interest income ...................... 65,318 61,044 62,838 58,263 Non-interest expenses .................... 155,247 149,270 159,624 162,035 Non-recurring charges .................... -- 11,059 -- 110,700 - ----------------------------------------------------------------------------------------------------------------- Income (loss) before taxes ............. 123,059 114,137 115,824 (3,981) Federal and state income taxes ........... 40,987 40,159 40,460 (1,742) - ----------------------------------------------------------------------------------------------------------------- Net income (loss) ...................... $ 82,072 $ 73,978 $ 75,364 $ (2,239) ================================================================================================================= COMMON SHARE DATA Net income (loss) ........................ $ .88 $ .79 $ .80 $ (.03) Net income (before non-recurring items*) ................................ .88 .86 .80 .72 Cash dividends declared .................. .36 .36 .32 .32 Book value at quarter end ................ 20.51 19.59 19.39 19.00 Market value at quarter end .............. 43.75 39.75 35.13 37.00 Common stock dividend payout ............. 40.91% 45.57% 40.00% NM Average common shares outstanding ........ 92,338 93,205 93,574 93,134 Common shares outstanding ................ 93,963 91,628 93,713 93,399 ================================================================================================================= BALANCE SHEET DATA (QUARTER END) Total assets ............................. $ 22,668,012 $ 22,388,229 $ 22,386,787 $ 22,329,776 Total deposits ........................... 18,374,986 18,309,952 18,198,466 18,093,804 Total loans .............................. 14,819,595 14,817,455 14,749,667 14,556,090 Shareholders' equity ..................... 1,926,873 1,837,852 1,859,781 1,816,922 Long-term debt ........................... 689,977 391,777 392,863 398,605 Allowance for loan losses ................ 267,719 271,138 276,017 280,590 ================================================================================================================= OPERATING RATIOS Before non-recurring items* Return on average assets ............... 1.47% 1.45% 1.37% 1.23% Return on average common equity ........ 17.46 17.54 16.72 14.72 After non-recurring items* Return on average assets ............... 1.47 1.33 1.37 (.04) Return on average common equity ........ 17.46 16.06 16.72 (.63) Efficiency ratio ......................... 53.34 50.80 53.86 55.60 ================================================================================================================= TAX-EQUIVALENT YIELDS AND RATES Interest earning assets .................. 7.63% 7.62% 7.62% 7.70% Interest bearing liabilities ............. 4.00 3.92 3.88 3.97 Net interest spread ...................... 3.63 3.70 3.74 3.73 Net interest margin ...................... 4.50 4.53 4.53 4.52 ================================================================================================================= LOAN QUALITY RATIOS Allowance for loan losses to quarter-end loans ................... 1.81% 1.83% 1.87% 1.93% Net charge offs to average loans ......... .57 .55 .55 .57 Non-performing loans to quarter-end loans ...................... .89 1.09 1.18 1.30 ================================================================================================================= CAPITAL RATIOS Tier I leverage to average assets ........ 8.06% 7.81% 8.01% 7.79% Tier I capital to risk-adjusted assets ... 11.09 10.61 10.75 10.57 Total capital to risk-adjusted assets .... 13.75 13.30 13.42 13.23 ================================================================================================================= - -----------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1995 - ----------------------------------------------------------------------------------------------------------------- Dec. 31 Sept. 30 June 30 Mar. 31 - ----------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Interest income .......................... $ 381,053 $ 377,514 $ 373,890 $ 363,160 Interest expense ......................... 158,492 161,134 159,178 147,572 - ----------------------------------------------------------------------------------------------------------------- Net interest income .................... 222,561 216,380 214,712 215,588 Provision for loan losses ................ 19,500 19,200 16,950 16,200 - ----------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses ............ 203,061 197,180 197,762 199,388 Non-interest income ...................... 58,150 58,131 55,918 51,990 Non-interest expenses .................... 159,348 158,322 162,318 162,373 Non-recurring charges .................... -- -- -- -- - ----------------------------------------------------------------------------------------------------------------- Income (loss) before taxes ............. 101,863 96,989 91,362 89,005 Federal and state income taxes ........... 36,707 34,812 33,092 31,738 - ----------------------------------------------------------------------------------------------------------------- Net income (loss) ...................... $ 65,156 $ 62,177 $ 58,270 $ 57,267 ================================================================================================================= COMMON SHARE DATA Net income (loss) ........................ $ .73 $ .70 $ .68 $ .66 Net income (before non-recurring items*) ................................ .73 .70 .68 .66 Cash dividends declared .................. .32 .29 .29 .29 Book value at quarter end ................ 19.89 19.36 18.50 17.98 Market value at quarter end .............. 35.63 32.00 30.38 27.50 Common stock dividend payout ............. 43.84% 41.43% 42.65% 43.94% Average common shares outstanding ........ 88,252 87,627 85,563 85,208 Common shares outstanding ................ 88,471 87,993 85,719 85,403 ================================================================================================================= BALANCE SHEET DATA (QUARTER END) Total assets ............................. $ 21,536,935 $ 21,149,787 $ 20,952,796 $ 20,750,376 Total deposits ........................... 17,955,103 17,513,124 17,185,629 16,834,242 Total loans .............................. 14,019,574 13,730,520 13,221,085 13,165,614 Shareholders' equity ..................... 1,802,316 1,745,997 1,628,324 1,578,397 Long-term debt ........................... 424,862 475,530 522,890 513,331 Allowance for loan losses ................ 279,034 291,156 290,366 296,936 ================================================================================================================= OPERATING RATIOS Before non-recurring items* Return on average assets ............... 1.22% 1.17% 1.13% 1.13% Return on average common equity ........ 14.81 14.63 14.74 15.14 After non-recurring items* Return on average assets ............... 1.22 1.17 1.13 1.13 Return on average common equity ........ 14.81 14.63 14.74 15.14 Efficiency ratio ......................... 56.22 55.70 58.95 59.43 ================================================================================================================= TAX-EQUIVALENT YIELDS AND RATES Interest earning assets .................. 7.80% 7.80% 7.94% 7.87% Interest bearing liabilities ............. 4.04 4.11 4.15 3.89 Net interest spread ...................... 3.76 3.69 3.79 3.98 Net interest margin ...................... 4.59 4.51 4.60 4.71 ================================================================================================================= LOAN QUALITY RATIOS Allowance for loan losses to quarter-end loans ................... 1.99% 2.12% 2.20% 2.26% Net charge offs to average loans ......... .91 .72 .72 .76 Non-performing loans to quarter-end loans ...................... 1.34 1.51 1.67 1.53 ================================================================================================================= CAPITAL RATIOS Tier I leverage to average assets ........ 7.97% 7.82% 7.69% 7.49% Tier I capital to risk-adjusted assets ... 10.75 10.60 10.49 10.22 Total capital to risk-adjusted assets .... 13.46 13.33 13.25 12.98 ================================================================================================================= - -----------------------------------------------------------------------------------------------------------------
*See Glossary on page 18 for definition of non-recurring items. NM - not meaningful 54 57 Summit Bancorp and Subsidiaries CORPORATE DIRECTORY SUMMIT BANCORP 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 609-987-3200 Corporate Management Chairman and Chief Executive Officer T. Joseph Semrod President Robert G. Cox Vice Chairmen John G. Collins John R. Howell Senior Executive Vice Presidents John R. Haggerty Sabry J. Mackoul Stephen H. Paneyko Executive Vice Presidents Larry L. Betsinger Alfred M. D'Augusta John R. Feeney William J. Healy Richard F. Ober, Jr. Dennis Porterfield Alan N. Posencheg Gary F. Simmerman George J. Soltys, Jr. Edmund C. Weiss, Jr. Senior Vice Presidents Susan U. Bredehoft Kerry K. Calaiaro Barry S. Duerk Peter J. Gindin Faith P. Goldstein Robert A. Gunther James J. Kreig Katherine Piell Paul V. Stahlin Robert Steinberg Timothy S. Tracey Dennis A. Williams Board of Directors S. Rodgers Benjamin Chairman and Chief Executive Officer Flemington Fur Company Robert L. Boyle Representative William H. Hintelmann Firm James C. Brady, Jr. Partner Mill House Associates, L.P. John G. Collins Vice Chairman Summit Bancorp Robert G. Cox President Summit Bancorp T.J. Dermot Dunphy Chairman and Chief Executive Officer Sealed Air Corporation Anne Evans Estabrook Owner Elberon Development Co. Elinor J. Ferdon Volunteer Professional National President Girl Scouts of U.S.A. Fred G. Harvey Vice President E&E Corporation John R. Howell Vice Chairman Summit Bancorp Francis J. Mertz President Fairleigh Dickinson University George L. Miles, Jr., CPA President and Chief Executive Officer WQED Pittsburgh Henry S. Patterson II President E'town Corporation Thomas D. Sayles, Jr. Former Chairman The Summit Bancorporation T. Joseph Semrod Chairman and Chief Executive Officer Summit Bancorp Raymond Silverstein, CPA Consultant Alloy, Silverstein, Shapiro, Adams, Mulford & Co., P.C. Orin R. Smith Chairman and Chief Executive Officer Engelhard Corporation Joseph M. Tabak President and Chief Executive Officer JPC Enterprises, Inc. Douglas G. Watson President and Chief Executive Officer Novartis Corporation Summit Bank 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 609-987-3200 Senior Management Chairman and Chief Executive Officer T. Joseph Semrod President Robert G. Cox Vice Chairman John G. Collins Senior Executive Vice Presidents John R. Haggerty Sabry J. Mackoul Stephen H. Paneyko Executive Vice Presidents Anthony J. Allora Alfred M. D'Augusta Robert Eberhardt, Jr. Gerald L. Facciani John R. Feeney Peter D. Halstead William J. Healy James S. Little Stewart E. McClure, Jr. H. Richard Minette Richard F. Ober, Jr. Robert J. Peters Dennis Porterfield Christophe-Pierre Terlizzi Timothy S. Tracey Regional Presidents Fredric B. Cort Stephen T. Emr J. Michael Feeks Michael J. Giacobello Gary F. Simmerman William J. Wolverton Senior Vice Presidents John P. Babcock John D. Battaglia Bette A. Bauer Donald W. Blum Susan U. Bredehoft Arthur J. Brown Thomas B. Butler Richard O. Carmichael Paul J. Cavaliere Stephen Chaberski Carol Coles J. Michael Cunnane Gaetana P. Cunsolo Jack Cussen James F. Deutsch Margaret L. Domber Barry S. Duerk Kermit Dyke Anne Ferguson James N. Ferrier Thomas M. Finn William R. Frasca Laura Gilardini Ferdinand R. Horn IV Virginia A. Ibarra Dorinda Jenkins-Glover Hilton M. Jervey 55 58 Summit Bancorp and Subsidiaries CORPORATE DIRECTORY (continued) Jeffrey J. Kraft James B. Kurdek Christopher Lahoda George B. Littlejohn Michael J. Maiorino, Jr. Charles A. Maraziti Simone Marino Stephen J. Mauger Richard J. Morbee George L. Nichols William C. Pasko Ronald Phillips Peter C. Platt Edward E. Poor IV Bindigana Ramaprasad Richard D. Rein Mary Reither Garrett W. Roberts Irwin Schwartz Thomas P. Smyth Alfred J. Soles Paul V. Stahlin Frank J. Stanziola J. Page Stiger, Jr. Richard Tappen Francis P. Testa Paul A. Towers Roger M. Tully Harold W. Ullmann Joseph Verbaro, Jr. Thomas M. Wick Arty C. Zulawski Senior Regional Managers Michael Alicea Barbara Baldino Thomas J. D'Angelo Barbara Oldt Jorge Rojas Daniel Slocum Gregory M. Smith Maurice J. Spagnoletti Edward Stahl Karen Sweeney Board of Directors Bjorn Ahlstrom Robert L. Boyle James C. Brady, Jr. Barry D. Brown John G. Collins Robert G. Cox T.J. Dermot Dunphy Anne Evans Estabrook Elinor J. Ferdon Samuel Gerstein, Esq. Richard H. Goldberger Robert S. Hekemian Thomas C. Jamieson, Jr., Esq. Vincent P. Langone Francis J. Mertz George L. Miles, Jr., CPA Bertram B. Miller Henry S. Patterson II T. Joseph Semrod Raymond Silverstein, CPA Orin R. Smith Sylvester L. Sullivan Joseph M. Tabak Alexander von Summer Robert A. Woodruff, Sr. SUMMIT BANK One Bethlehem Plaza Bethlehem, Pennsylvania 18018 610-865-8411 Senior Management Chairman, President and Chief Executive Officer John R. Howell Executive Vice President Tomas J. Bamberger Regional Presidents Fredric B. Cort Gary F. Simmerman Senior Vice Presidents Philip D. Beck Michael L. Brown Thomas L. Burns Francis P. Testa Senior Regional Manager Gary F. Lamont Board of Directors Charles J. Bufalino, Esq. Walter J. Dealtrey Ronald D. Ertley Alfred M. Giannangeli Henry A. Giuliani, Esq. Allan L. Goodman John R. Haggerty Fred G. Harvey John R. Howell William L. Morse, Jr. Donald M. Pachence Richard H. Penske Robert J. Tunnessen John W. Woltjen Summit Service Corporation 55 Challenger Road Ridgefield Park, New Jersey 07660 201-296-3000 Senior Management Chairman of the Board John G. Collins President and Chief Executive Officer Alan N. Posencheg Executive Vice President Larry L. Betsinger Senior Vice Presidents Hubert P. Clarke Elaine Fettig Frank J. Litterio Ray W. Mead Santiago Patino Eugene E. Schwarzenbek John J. Smith SUMMIT DISCOUNT BROKERAGE CO. 305 Route 17 South P.O. Box 929 Paramus, New Jersey 07652 201-262-8400 1-800-631-1635 Senior Management President and Chief Executive Officer Joseph J. McCaffrey Executive Vice President Jack R. Ader Senior Vice Presidents Gerard Hallman Loretta Kane SUMMIT VENTURE CAPITAL, INC. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543 609-987-3200 President and Chief Executive Officer Stephen H. Paneyko Summit Commercial/ Gibraltar Corp. 546 Fifth Avenue New York, New York 10036 212-997-3350 Senior Management Chairman of the Board Robert J. Peters President and Chief Executive Officer Irwin Schwartz Executive Vice President Harvey Friedman Senior Vice President Robert A. Schnitzer 56 59 Summit Bancorp and Subsidiaries Shareholder and Corporate Information Headquarters Summit Bancorp 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 (609) 987-3200 www.summitbank.com Annual Shareholders Meeting Friday, April 18, 1997 at 10 a.m. Hyatt Regency Princeton Route 1 and Alexander Road Princeton, New Jersey Common Stock Data Common stock is traded on the New York Stock Exchange under the symbol SUB. Daily stock quotes: The New York Times - SumtBc The Wall Street Journal - SummitBcp Dividend Reinvestment and Stock Purchase Plan Stockholders may have quarterly dividends automatically reinvested in additional shares without service charges. Optional cash payments, up to $25,000 per quarter, toward the purchase of shares are permitted. Plan prospectus and enrollment card: First Chicago Trust Company of New York, (201) 324-0498. Transfer and Dividend Paying Agent/Registrar First Chicago Trust Company of New York P.O. Box 2500 Jersey City, New Jersey 07303-2500 (201) 324-0498 Co-Transfer Agent: Summit Bank Other Reports Copies of Form 10-K are available without charge. Write: Summit Bancorp Corporate Comptroller P.O. Box 2066 Princeton, New Jersey 08543-2066 Contacts Security analysts, portfolio managers and others seeking financial information: (609) 987-3226. News media: (609) 514-7872. Shareholder inquiries: (609) 987-3452. Stock records: First Chicago Trust Company of New York (201) 324-0498. Hours: Representatives 8:30 a.m.-7 p.m. EST weekdays; Automated response 8 a.m.- 10 p.m. weekdays, 8 a.m.-3:30 p.m. Sat. [TABLE: SUMMIT BANCORP FIVE-YEAR CUMULATIVE TOTAL RETURN]
Year Summit S&P 500 KBW 50 ---- ------- ------- ------- 1992 $172.92 $107.64 $127.42 1993 175.71 118.5 134.48 1994 183.08 120.06 127.62 1995 278.04 165.18 204.41 1996 353.75 203.11 289.15
Quarterly Common Stock Price and Dividend Information
1996 1995 --------------------------------------------- ---------------------------------------------- Dividends Dividends High Low Close Declared High Low Close Declared ------ ------ ------ --------- ------ ------ ------ --------- 4th Quarter $45.13 $39.50 $43.75 $.36 $35.75 $31.50 $35.63 $.32 3rd Quarter 41.13 32.63 39.75 .36 37.25 30.00 32.00 .29 2nd Quarter 39.50 34.00 35.13 .32 30.75 27.13 30.38 .29 1st Quarter 40.13 34.38 37.00 .32 28.75 24.13 27.50 .29
57 60 [SUMMIT BANCORP LOGO] 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 EX-21 12 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT (21) 2 Exhibit (21) Subsidiaries of Summit Bancorp. Summit Bancorp. is the parent corporation. Detailed information on its present subsidiaries appears in the Narrative description of business. Additional information is as follows: Jurisdiction of Name Incorporation Summit Bank New Jersey Sethmark Holding Corp. New York Sethmark Capital Corporation New York MJD Asset Corporation New Jersey Old Reliable Corporation New Jersey Palisade Funding Corp. New Jersey Palvest Corp. New Jersey Palservco, Inc. New Jersey Palisade Financial Services, Inc. New Jersey Nelav, Inc. New Jersey VerValen, Inc. New Jersey Flemington National Investment Co. New Jersey UJB International Trade Finance Corp. New Jersey UJB Trade Finance (HK), Limited Hong Kong First Pipco, Inc. New Jersey C.I. Pip Restaurant Co. New Jersey CiPip Properties Co. New Jersey Summit Leasing Corporation New Jersey United Jersey Hackensack Investment Corporation New Jersey CTC Investment Co. Delaware S.A.R. Realty Holding Corporation New Jersey Pipco-On-The-Hudson, Inc. New Jersey Pipco/TM8, Inc. New Jersey Pipco/TM10, Inc. New Jersey Pipco/TM13, Inc. New Jersey Pipco/Spring Hill, Inc. New Jersey Pipco 205 Park, Inc. New Jersey Pipco Schoolhouse Estates, Inc. New Jersey Pipco Urban Restoration, Inc. New Jersey Pipco Windsong, Inc. New Jersey Pipco Parsippany, Inc. New Jersey Pipco 121-123 Grand Avenue, Inc. New Jersey Pipco Bright, Inc. New Jersey Pipco Oakland, Inc. New Jersey Pipco Raintree, Inc. New Jersey Pipco Underhill, Inc. New York Pipco MK, Inc. New Jersey Pipco Carlstadt, Inc. New Jersey 3 Pipco Ewing, Inc. New Jersey Pipco 851 Boulevard, Inc. New Jersey Pipco Alpine, Inc. New Jersey Pipco Norte, Inc. New Jersey Alternative Financial Group, Inc. Pennsylvania PipHam Gardens, Inc. New York PipAshley, Inc. New Jersey Pipco Urban Renewal Corporation, Inc. New Jersey Commonwealth Pipco Corp. Pennsylvania Pipco Hansen Land Corp. Pennsylvania PipCRA, Inc. New Jersey PipLandCo, Inc. New Jersey PipCondoCo, Inc. New Jersey PipWarehouseCo, Inc. New Jersey PipQuarryCo, Inc. New Jersey PipPomonaCo, Inc. New York Second PipLandCo, Inc. New Jersey Second PipCondoCo, Inc. New Jersey Houses-R-Pip, Inc. New Jersey PipGate Mill Properties, Ltd. New Jersey PipHyde Park, Limited New York NewPip Properties Co., Ltd. New Jersey FSB Investment Corp. New Jersey Franklin State Armored Corporation New Jersey Central Pipco, Inc. New Jersey Central Pipco Sanson, Inc. New Jersey Central Pipco Petrocella/Temes, Inc. New Jersey Central Pipco Spring Knolls, Inc. New Jersey Evergreen Cenpipco, Inc. New Jersey CenPipMaple, Inc. New Jersey CenPipPRD, Inc. New Jersey CenPipCho35, Inc. New Jersey Central Pipco Thom, Inc. New Jersey CenPipColt, Inc. New Jersey CenPipUnited, Inc. New Jersey ExeCenPip EM1, Inc. New Jersey MorCenPip EM2, Inc. New Jersey EmsCenPip EM3, Inc. New Jersey ProCentip Plains, Inc. New Jersey SayCenPip Ville, Inc. New Jersey HalCenPip Tides, Inc. New Jersey VolCenPipChik, Inc. New Jersey StakCenPipWood, Inc. New Jersey Alternative Financial Group, Inc. New Jersey 34 Cen Pip Plaza, Inc. New Jersey BunnCenPip 202, Inc. New Jersey Central Residential Properties, Inc. New Jersey Madison CenPipRidge, Inc. New Jersey 4 Clearbrook ProCenPip, Inc. Pennsylvania CenPipMatawan, Inc. New Jersey EIN Cen Pip Binder, Inc. New Jersey CenPipChowderPot, Inc. New Jersey South Pipco, Inc. New Jersey ManSoPip Management Corp. New Jersey PropSoPip Properties Corp. New Jersey DevSoPip Development Corp. New Jersey Aristone So Pip, Inc. New Jersey New Jersey Affiliated Financial Services, Inc. New Jersey STC Investment Holding Company New Jersey Beechwood Insurance Agency Corporation New Jersey One Main Properties - Berkeley Heights, Inc. New Jersey One Main Properties - Lebanon, Inc. New Jersey One Main Properties - New Brunswick, Inc. New Jersey One Main Properties - Millburn, Inc. New Jersey One Main Properties - Atlantic Highlands, Inc. New Jersey One Main Properties - Union Township, Inc. New Jersey One Main Properties - Red Bank, Inc. New Jersey One Main Properties - Chatham, Inc. New Jersey Smithcrest Realty, Inc. New Jersey 34 West - Bethlehem Corporation New Jersey 34 West - Memorial Parkway Corporation New Jersey 34 West - Rte. 22/523 Corporation New Jersey 34 West - White Twp. Corporation New Jersey 34 West - Lafayette Corporation New Jersey 34 West - Main Street Hackettstown Corporation New Jersey 34 West - Route 206 Hillsborough Corporation New Jersey 34 West - Route 31 Flemington Corporation New Jersey 34 West - Omni Drive Hillsborough Corporation New Jersey 34 West - Greenwich TP., Inc. New Jersey 34 West - Route 206 Branchburg Corporation New Jersey 34 West - Route 31/Pennsylvania Ave. Corp. New Jersey 34 West - Washington Office Corp. New Jersey 34 West - Leland Ave. Plainfield Corporation New Jersey 34 West - Arbor Glen Corporation New Jersey 34 West - Rt. 22 Branchburg Corp. New Jersey Seagull Red Bank, Inc. New Jersey Seagull Landmark, Inc. New Jersey Seagull Beaver Dam, Inc. New Jersey Seagull Richmond, Inc. New Jersey Seagull Ninth Street, Inc. New Jersey Seagull Dock Inc. New Jersey Seagull 15th Street, Inc. New Jersey Seagull Lacey, Inc. New Jersey Seagull Manahawkin, Inc. New Jersey Seagull Atlantic, Inc. New Jersey Crestmont Finance Corporation I New Jersey 5 GS Holdings NJ, Inc. New Jersey GS Holdings, Inc. New Jersey Pro One, Inc. New Jersey Pro Two, Inc. New Jersey Pro Three, Inc. New Jersey Pro Four, Inc. New Jersey Pro Five, Inc. New Jersey Garden Financial, Inc. New Jersey GSB Financial Services, Inc. New Jersey Greenbriar Service Corporation New Jersey Crestmont Insurance Agency, Inc. New Jersey Crestmont Securities, Inc. New Jersey Colts Neck Orchard Construction Service Corporation New Jersey GLP, Inc. New Jersey 173 Elm Street Leasing Corp., Inc. New Jersey Eastern Monmouth Service Corporation New Jersey Central Monmouth Service Corporation New Jersey Crestmont Hospitality, Inc. New Jersey Crestmont Residential Service Corp. I New Jersey Crestmont Residential Service Corp. II New Jersey Crestmont Residential Service Corp. III New Jersey Crestmont Middletown 35, Inc. New Jersey Crestmont Orange 209, Inc. New Jersey Crestmont Lodi 17, Inc. New Jersey Crestmont Residential Edison Alva, Inc. New Jersey Crestmont Residential Asbury Park, Inc. New Jersey Ocean Investment Company New Jersey Somerset Investment Company New Jersey First Valley Corporation Pennsylvania Summit Bank Pennsylvania Valbeth, Inc. Pennsylvania North-Val, Inc. Pennsylvania Summit Discount Brokerage Co. Pennsylvania First Valley Capital Corporation Pennsylvania First Valprop, Inc. Delaware First North-Val, Inc. Pennsylvania Second North-Val, Inc. Pennsylvania Third North-Val, Inc. Pennsylvania Fourth North-Val, Inc. Pennsylvania Fifth North-Val, Inc. Pennsylvania Sixth North-Val, Inc. Pennsylvania Seventh North-Val, Inc. Pennsylvania Eighth North-Val, Inc. Pennsylvania Ninth North-Val, Inc. Pennsylvania HBP Financial Corp. Pennsylvania First Valley Financial Services, Inc. Pennsylvania First Valley Life Insurance Company Arizona FirstVal Properties, Inc. Pennsylvania 6 The Summit Mortgage Company, Inc. New Jersey Summit Credit Corp. Delaware Gibraltar Corporation of America New York Asset Management Corp. New Jersey Rahway Avenue Urban Renewal Corporation New Jersey Trico Mortgage Company, Inc. New Jersey Securitization Subsidiary I, Inc. New Jersey Zumbadora Corporation New Jersey United Jersey Credit Life Insurance Company Arizona Summit Venture Capital, Inc. New Jersey India, Inc. Delaware United Jersey Financial Corp. New Jersey UJB Financial Service Corporation d/b/a Summit Service Corp. New Jersey UJB Financial Payment Systems, Inc. New Jersey Summit Corporate Secretary, Inc. New Jersey Summit Commercial Corp. New Jersey The Bank of Mid-Jersey New Jersey Oxmead Corporation New Jersey Bank of Delaware Valley Pennsylvania Hopkins Corp. New Jersey B.M.J. Leasing Co., Inc. New Jersey The B.M.J. Investment Corporation New Jersey All listed subsidiaries in existence during 1996 are included in the consolidated financial statements in the Summit Bancorp. 1996 Annual Report to Shareholders contained herein as Exhibit 13. As of 3/1/97 EX-23.A 13 INDEPENDENT AUDITORS' CONSENT - KPMG PEAT MARWICK 1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Summit Bancorp: We consent to incorporation by reference in Registration Statement No. 2-78500 on Form S-8, Registration Statement No. 33-13930 on Form S-8, Registration Statement No. 33-36209 on Form S-8, Registration Statement No. 33-38172 on Form S-8, Registration Statement No. 33-53870 on Form S-3, Registration Statement No. 33-58152 on Form S-3, Registration Statement No. 33-62972 on Form S-8, Registration Statement No. 33-54667 on Form S-8, Registration Statement No. 33-61353 on Form S-8, and Registration Statement No. 333-02625 on Form S-8 of Summit Bancorp of our report dated January 20, 1997 except as to the third paragraph of Note 2, which is as of February 28, 1997, relating to the consolidated balance sheets of Summit Bancorp and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996 which report is incorporated by reference in the December 31, 1996 Annual Report on Form 10-K of Summit Bancorp. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Short Hills, New Jersey March 26, 1997 EX-27 14 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1996 10-K FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 12-MOS DEC-31-1996 DEC-31-1996 1256684 24825 111143 26376 2670414 3217384 3198347 14819595 267719 22668012 18374986 1338734 337442 689977 0 0 112755 1814118 22668012 1191805 353807 5195 1550807 527535 639296 911511 62000 5217 747935 349039 229175 0 0 229175 2.44 2.44 4.52 132086 0 0 11048 285376 105037 23230 267719 134495 0 133224
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